South Africa’s Finance Minister Enoch Godongwana introduced a revised budget featuring a reduced VAT hike to 16% by 2027. Despite the scaled-back increase, it faced fierce opposition from the Democratic Alliance, which questioned its economic implications. The budget aims to enhance public services with a significant financial allocation but has raised concerns about its effects on poverty and government stability.
On Wednesday, Enoch Godongwana, South Africa’s Minister of Finance, presented a revised budget which notably reduced the proposed increase in value-added tax (VAT). The new budget plan, however, encountered significant backlash, particularly from the Democratic Alliance (DA), a prominent party within the country’s coalition government. Under the proposal, VAT will rise by one percentage point to 16% by the 2026/27 financial year, in a staggered implementation with two phases: an increase of 0.5% in the 2025/26 year, followed by another 0.5% the subsequent year.
The announcement was met with disapproval, as several members of parliament responded with boos. The DA expressed immediate opposition to the budget, with its leader, John Steenhuisen, emphasizing, “We will continue to fight for economic growth and jobs.” In defense of the tax policy, Godongwana asserted that raising corporate or personal income tax would negatively impact investment and job creation. He contended that VAT, albeit a burden across all socio-economic strata, is essential to fund critical public services.
South Africa’s economy, recognized as the most industrialized on the continent, is grappling with a meager growth rate of 0.6% in 2024, alongside an alarming 32% unemployment rate and pervasive inequality. The World Bank estimates indicate that approximately two-thirds of the population lives in poverty. The latest budget allocates over one trillion rands (approximately $54.4 billion) over the next three years, aimed at enhancing infrastructure and public services, in addition to increasing tax authority funding to recover delinquent revenues.
Despite these intentions, the DA cautioned that the proposed budget may exacerbate the financial plight of South Africans and jeopardize the stability of the unity government. The party has pledged to withdraw its support, raising concerns about the budget’s ability to achieve the parliamentary majority essential for its passage.
In summary, South Africa’s revised budget proposal incited considerable controversy despite less aggressive VAT increases. The planned staggered VAT hike, aimed at financing public services, has been criticized by key political figures and raised urgent questions regarding economic growth, employment, and the potential impact on the unity government. The controversy highlights the challenges facing the nation as it seeks to balance fiscal responsibility with the socio-economic needs of its citizens.
Original Source: newscentral.africa
