Finance minister Enoch Godongwana admitted he had a “tough time” negotiating a budget that could be approved at cabinet level after a VAT hike proposal forced the postponement of his February budget.
Addressing journalists and economists in a lock-up briefing ahead of his budget speech on Wednesday, Godongwana said the objective of tabling a budget became captive to the political interests of parties in the government of national unity (GNU).
Godongwana’s redrafted budget proposes a smaller VAT increase than the previous one with two 0.5 percentage point increases in each of the next two years. Political parties and business formations are already pushing back against this revised tax proposal.
Commenting on the imbroglio of abruptly postponing his February budget for the first time in the history of South African democracy, Godongwana quipped: “In light of the discussions at cabinet, I may have to change this.”
In a moment of frank candour, Godongwana said political parties in the GNU were open to accepting the budget but needed to secure other inroads for their respective bases.
The DA was the most vocal of the GNU parties in rejecting the February budget.
“The DA?! My friends ... [When it comes to] the DA ... is their problem the tax or is their problem something else? It’s important to call a spade a spade. I have personally met the DA despite the fact they said there was no resolution.”
Less than an hour after the minister tabled the speech last month, DA leader and agriculture ministerJohn Steenhuisen released a statement saying the party rejected it, slamming it as a “tax and chaos budget”.
“The DA made it clear to the ANC in the GNU that we would not support any increase in taxes, unless those increases were temporary and the ANC agreed to a series of major reforms that would grow the economy, create jobs, reduce waste and bring down taxes within three years,” Steenhuisen said at the time.
He said the ANC refused to agree to the DA’s measures and instead insisted on two VAT increases of half a percent over the next two years. As a consequence, the people of South Africa will be poorer, and the future of the government is at risk, he said.
Build One SA spokesperson Roger Solomons said the GNU’s first budget was a “punch to the gut of already struggling South Africans” with the overstretched tax base now facing a double tax.
One of the issues they highlighted was that [the DA] have lost a couple of battles and it is creating tensions within their party, and therefore, they want to win something. So it is not surprising that their submission to the president includes things that are outside the budget, including the expropriation issue.
— Enoch Godongwana, finance minister
“Working families will pay more in tax on at least two fronts to foot the bill for government’s unjustifiable choices. Not only will VAT increase by 0.5 percentage points each year for the next two years, but there will be no inflationary adjustments to personal income tax brackets, rebates and medical tax credits this year.”
He said taxpaying South Africans will pay more income tax and receive less tax rebate benefits and that by next year VAT will be 16%. Speaking to Newzroom Afrika after the joint sitting, mineral and petroleum resources minister Gwede Mantashe came to Godongwana's defence, saying the DA hoped to influence the GNU to change tack on other issues such as NHI and the Basic Education Laws Amendment Act.
At the lock-up briefing, Godongwana said behind the scenes the DA wanted to twist the government’s arm on other policy positions that they found to be contentious such as the NHI and the Expropriation Act .
“One of the issues they highlighted was that they have lost a couple of battles and it is creating tensions within their party, and therefore they want to win something. So it is not surprising that their submission to the president includes things that are outside the budget, including the expropriation issue.”
Wednesday morning's briefing to economists and journalists was delayed to 11.30am after they were advised that the cabinet meeting where Godongwana was briefing his colleagues had not yet ended.
This is despite the government having had two weeks to resolve the deadlock on the budget at cabinet level.
The deadlock over a proposal to hike VAT by two percentage points to 17% forced a postponement last month. The redrafted budget proposed a 0.5 percentage point hike in 2025 and another in 2026.
In February the cabinet meeting ahead of the budget joint sitting was pushed back because President Cyril Ramaphosa was travelling from Johannesburg to Cape Town that morning, according to Godongwana.
Godongwana said he was of the view that among political party leaders in the GNU, the 0.5 percentage point VAT hike proposal is acceptable on condition that other demands were met, which he said were “above his paygrade”.
“We hope — that’s beyond my paygrade — the leaders that are negotiating these issues ... it’s not about VAT only, it’s about a whole set of grievances that they have which are above my paygrade, so they need to sort out those grievances.”
South Africa Wine strongly condemned the minister's decision to propose excise duties on alcoholic beverages of 6.75% for 2025/26.
“The government has ignored the industry’s urgent warnings and the devastating impact this will have on jobs, exports and rural economies. Instead of fostering economic growth and industry sustainability, the government has further burdened an already struggling sector with an unworkable tax regime,” the organisation said in a statement.
Partner and head of legal at Tax Consulting SA Darren Britz said over the medium term the 0.5 percentage point VAT increases will make up the bulk of additional revenue, bringing in R11.5bn in 2025/26 and an estimated R27bn in 2026/27.
“The already over-burdened individual taxpayers will bear the brunt of strengthening the state coffers in 2025/26. Treasury will ensure an additional R19.5bn in revenue by not adjusting the personal income tax brackets, rebates and medical tax credits for inflation.”
Campaign manager for Alcohol Harms Reduction Kashifa Ancer said imposing an excise duty increase on alcohol was not likely to effectively bring about harm reduction in consumption.
“Countries like Scotland, Canada and Australia have successfully cut binge drinking and alcohol-related deaths by implementing minimum unit pricing and tiered tax systems that outpace inflation and target the cheapest, strongest drinks,” she said.
“South Africa, however, continues to raise taxes without a clear harm-reduction plan.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.