Proposed VAT Increase Continues to Mar South Africa's Budget Process
The revised budget presented by Finance Minister Enoch Godongwana is unsatisfactory to opposition parties and some partners in the Government of National Unity.
South African Minister of Finance Enoch Godongwana presented the national budget policy statement earlier today, after it was postponed due to controversy over a 2 percent VAT increase.
Finance Minister Enoch Godongwana's announcement of a potential value-added tax (VAT) increase has triggered widespread adverse reactions across South Africa. During his national budget policy statement to Parliament today, Godongwana proposed a 0.5 percentage point increase this year, followed by an additional 0.5 percent raise next year, ultimately moving the VAT rate from 15 percent to 16 percent by 2026.
Political leaders have quickly voiced their opposition to the proposed changes: Economic Freedom Fighters leader Julius Malema declared his party would vote against the budget, stating that any VAT increase is unacceptable. “We agree that we need to invest in infrastructure, but let's tax the rich, let the corporate tax be increased. Let there be a tax on the wealthy people of South Africa who buy buffaloes for 22 million rands ($1.2 million). Those people should be made to pay and finance the social responsibilities of the state."
Similarly, John Hlophe, uMkhonto weSizwe (MK) party leader in Parliament and previously sacked judge, asserted that "increasing VAT by any percentage is disastrous." Hlophe added that Black people would bear most of the brunt of the increase.
Earlier this week, the MK partythreatened to mobilize nationwide protests if the VAT increases. Hundreds of party members marched to the National Treasury and the South African Reserve Bank offices in Pretoria, carrying placards in opposition to any VAT increase.
Tension over a potential VAT increase has been building for some time. A previously proposed two percent VAT increase led to the postponement of the budget presentation initially scheduled for last month. Disagreement over the VAT increase caused the budget to be shuttered by parties in theGovernment of National Unity (GNU).Analysts hadexpected Godongwana's presentation would include some form of VAT increase, though not as high as the initially proposed two percent. While tabling the revised budget, Godongwana explained that South Africa's economy had underperformed in the previous year, with GDP growth at just 0.6 percent, necessitating tax increases to maintain social programs like the Social Relief of Distress (SRD) grant and continued infrastructure investments. He also said the economy is primed for better performance this year and in 2026.
The finance minister stated that a 0.5 percent VAT increase will add 28 billion rand ($1.5 billion) to the government's purse as it plans to raise expenditure. The government has justified its growing expenses by citing the need to hire skilled health, security and education workers, fund SRD grants, and address an increasing wage bill.
Opposition parties have suggested alternative approaches. Build One South Africa (BOSA) proposed that the governmentcould cut R76 billion (about $4.2 billion) in spending by reducing bailouts for state-owned enterprises, freezing upper and middle management hiring, scaling back diplomatic missions, reducing foreign embassies, and responsibly phasing out SRD grants — currently a divisive issue.
Following the budget presentation, BOSA party leader Mmusi Maimane criticized it as "a budget without growth, a budget that double taxes people for years of corruption."John Steenhuisen, Democratic Alliance (DA) leader and minister for agriculture, expressed concerns about several policies over the past year, including theBELA bill and thecontroversial expropriation act. He suggested these laws — particularly the latter — are hindering South Africa's ability to attract foreign investments. The DA is one of the partners in the GNU led by the African National Congress (ANC).
In response, ANC chairperson and petroleum resources minister, Gwede Mantashe, accused the DA of politicizing the budget discussion: "The reality of the matter is that our budget speaks to the needs of the people, where we stay, where we play and where we pray. Therefore, it is important for people to read that budget very carefully."
Rise Mzansi leader Songezo Zibi has urged that conversation about the budget not be limited solely to the proposed VAT increase. He noted that inflationary measures are being affected by other parts of the budget proposal, "which means it is the teachers, nurses, policemen, artisans, plumbers, entry-level workers, the graduates-in-training who are paying for these things."
While acknowledging some positive initiatives to improve infrastructure and reduce unemployment, Zibi believes more holistic approaches are needed to cater to citizens: "The government needs to invest money to reduce the cost of living for ordinary South Africans."
