The ANC is shifting its focus to aggressive interest rate cuts and tax reforms as a way to revive the struggling economy, marking a significant departure from its earlier plans to increase value-added tax (VAT).
This new approach, which is likely to draw criticism from certain quarters, is outlined in the ANC’s economic transformation discussion document, which lays out proposals to stimulate growth and investment in the face of persistent economic challenges.
The South African Reserve Bank (Sarb) has always been deemed independent from political interference, and the ANC’s stance points to an intention to meddle with the monetary policy committee to increase money supply in the economy.
The document, which was submitted to the recent ANC NEC meeting, highlights the need for bold measures to address South Africa’s sluggish economic performance, which has seen growth average 0.8% annually over the past decade.
The discussion document underscores the importance of lower interest rates in supporting economic recovery.
It notes that recent rate cuts offered some relief to consumers but argues that the pace of these cuts has been too slow to make a meaningful impact.
“Interest rate cuts remain slower than is required to support the economy, especially given how long the South African economy has been within the inflation target range of 3%-6%,” the document states.
The ANC’s focus on interest rates comes after the Sarb’s recently announced shift to a stricter inflation target of 3%, down from the previous range of 3% to 6%.
While the ANC acknowledges the long-term benefits of lower inflation, it warns that the move could have short-term negative effects on growth. “Introduction of a lower inflation target is widely accepted as having a short-term negative impact on growth but long-term benefits,” the document explains.
The party also raises concerns about whether the timing is right for such a change, given the country’s weak economic performance. “Growth amounted to just 0.6% in 2024, and growth of 0.1% for Q1 2025 is so low that it is not statistically significant,” the document points out.
The ANC’s current proposals mark a clear departure from its earlier plans to increase VAT, which faced widespread public backlash. The VAT hike was seen as a regressive measure that would disproportionately affect low-income households.
The ANC is also planning to now focus on targeted tax reforms aimed at encouraging investment in key sectors. Tax policy on investment must be carefully assessed, given that South Africa’s investment performance has been far below the National Development Plan targets, the document states.
The ANC is also considering whether lowering the corporate income tax rate or introducing differentiated investment and depreciation allowances for priority sectors would be more effective. These measures are aimed at boosting investment in labour-intensive sectors such as manufacturing and construction, which have been lagging.
“Significant differences in effective tax rates across economic sectors have lifted returns in beneficiary sectors and encouraged high rates of investment in some sectors while disincentivising investment in mining, manufacturing, and agriculture,” the document notes.
The ANC’s proposals also highlight the delicate balance between controlling inflation and supporting economic growth. While the Sarb operates independently in its pursuit of inflation targeting, the ANC stresses that the policymaking responsibility lies with the finance minister, who sets the inflation target in consultation with the Sarb.
The document calls for a flexible approach to inflation targeting, arguing that a range target rather than a point target would give South Africa more room to respond to external shocks.
“Having a range target rather than a point target gives South Africa flexibility in responding to external shocks over which we have no control,” the document states.
In addition to tax reforms and interest rate cuts, the ANC is calling for targeted interventions to stimulate growth in key sectors. These include expanding the digital economy and developing economic infrastructure in townships and informal settlements, such as industrial parks and informal retail spaces. The party believes that these measures could underpin labour-intensive growth and create much-needed jobs.
The ANC concludes its discussion document by calling for a national dialogue to help South Africans reimagine the country’s future. “National dialogue needs to help citizens reimagine the South Africa we want.”
