This was never going to be an easy budget.
In the end, finance minister Enoch Godongwana gets some form of a VAT increase but at the risk of a budget that may never pass the parliamentary process over the next few weeks.
From the moment political parties in the government of national unity (GNU) — including the ANC — learnt how much Godongwana planned to increase the VAT rate, they immediately went on the offensive. A two-percentage-point hike was never going to fly.
A series of political engagements took place after the rejection of the February 19 budget, and in the end Godongwana stood firm and got partial support for two 0.5% hikes over the next two fiscal years.
The DA — the biggest partner in the GNU — says there was no agreement on the budget, and it won't support it. The MK Party and EFF, the second and third biggest opposition parties, are also dead against a VAT increase, so any hopes of striking a compromise deal with them without toppling this GNU formation are dead in the water.
But it was what DA leader John Steenhuisen said when addressing journalists outside the dome set up at the Nieuwmeester parking lot (the temporary home of the National Assembly) which President Cyril Ramaphosa, Godongwana and the rest of the ANC would do well to heed as they again prepare to seek political support for the budget.
Steenhuisen said the DA would be open to a smaller VAT increase on the understanding this would be reversed if the economy grows enough for the Treasury to collect more tax revenue. What the DA needs to clarify is how much economic growth they reckon would be enough to reverse the VAT increases.
The Treasury forecasts economic growth of 1.9% for 2025, 1.7% for 2026 and 1.9% for 2027.
This 0.5% VAT hike will generate R13.5bn in tax revenue in 2025/26, R30bn in 2026/27 and R32bn in 2027/28. It is significantly lower than would have been raised by a two-percentage point VAT hike, which guaranteed R58bn extra revenue in 2025/26 alone.
The Treasury has had to revise spending plans downwards and make tax adjustments that will hurt almost every one of us in the pocket. Though social grants are adjusted upwards for inflation, recipients will no longer receive above-inflation increases as was promised in the now-rejected budget.
There are no inflationary adjustments to tax brackets. This means inflation-linked salary increases will land more people into higher tax brackets, squeezing more tax out of their wages. However, there was some tax relief for lower-income earners.
To protect consumers, there will be no increase in the fuel levy. Excise duty on alcohol and cigarettes goes up by 6.75% and 4.75% respectively. With these tax proposals, the government estimates it can raise R28bn in additional revenue in 2025/26, R44bn in 2026/27 and R47bn in 2027/28.
The battle now moves to parliament, which must pass three pieces of legislation to implement all the new tax measures, allocate money to national departments and provide for funds to flow to provinces and municipalities.
With a 40% representation in the House, the ANC needs to convince a significant political party to vote with it, otherwise these measures will be rejected by a majority of MPs, plunging the country into a full crisis mode. The road ahead is still marred by uncertainty.
For opinion and analysis consideration, e-mail Opinions@timeslive.co.za
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