South Africa’s National Treasury suggested a smaller VAT hike in a revised budget to resolve coalition disputes. The new proposal includes a 0.5 percentage-point increase on May 1 and another in 2026. The ANC needs support to pass the budget, with the DA opposing it. Urgent spending pressures have prompted this tax hike to fund essential services, despite potential inflation rise.
South Africa’s National Treasury has introduced a revised budget suggesting a more modest value-added tax (VAT) increase, aiming to break the deadlock among coalition parties. Initially, a two-percentage-point increase was proposed, but the African National Congress (ANC) faced opposition from its main coalition partner, leading to a budget delay. The new proposal outlines a 0.5 percentage-point increase to 15%, effective May 1, followed by another increase in 2026.
As Finance Minister Enoch Godongwana prepared to present the budget, opposition from the Democratic Alliance (DA) was reaffirmed. DA leader John Steenhuisen publicly declared, “The DA will not support the budget in its current form.” This budget presents a significant challenge to South Africa’s coalition government, which was established after the ANC failed to secure a parliamentary majority for the first time since 1994.
The ANC requires support from at least one major party to successfully pass the budget. However, opposition from non-coalition parties, including the Economic Freedom Fighters, complicates the situation as they also resist tax hikes. Though the ANC and DA often find themselves at odds ideologically, they have cooperatively maintained governance amidst occasional disputes.
The Treasury cites urgent “new and persistent” spending pressures necessitating additional funding for vital sectors such as health and education. Godongwana emphasized, “This decision was not taken lightly. We thoroughly examined alternatives to raising the VAT,” indicating that a tax hike was optimal for minimizing spending cuts. The proposed measures aim to generate an estimated 28 billion rand ($1.53 billion) in the fiscal year beginning April 1, 2025, a figure significantly lower than the initial 58 billion rand target.
Additionally, revised documentation reveals that the budget deficit for 2025/26 projects at 5.0% of GDP, while national debt is expected to peak at 76.2% of GDP during the same period. The budget forecasts an uptick in consumer inflation resulting from the VAT increase.
In summary, the revised budget of South Africa proposes a lesser VAT increase amid coalition disputes. The National Treasury seeks to address significant spending pressures while generating revenue, though practical support in parliament remains uncertain. The proposed budget reflects ongoing challenges in governance and highlights the impact of the VAT increase on consumer inflation, fiscal health, and economic strategies moving forward.
Original Source: www.cnbcafrica.com
