South Africa’s National Treasury proposed a 0.5% VAT hike instead of the initially planned 2%. This is part of a revised budget aimed at resolving coalition tensions but faces opposition from the Democratic Alliance. Expected to generate 28 billion rand, the budget addresses persistent spending pressures, with an anticipated increase in consumer inflation as a result of the tax hike.
On March 12, South Africa’s National Treasury proposed a smaller value-added tax (VAT) hike in a revised budget. The aim is to break the deadlock within the coalition government. Previously, a 2-percentage-point increase had been suggested but faced opposition from the African National Congress’s primary coalition partner, which led to a budget postponement.
The new proposal suggests a 0.5-percentage-point VAT increase from the current 15%, starting May 1, 2025, followed by another 0.5-point increase in 2026. However, the Democratic Alliance, led by John Steenhuisen, maintained opposition, stating, “The DA will not support the budget in its current form.”
This budget marks a significant challenge for South Africa’s coalition government, which was formed after the ANC lost its parliamentary majority for the first time since apartheid’s end in 1994. For the budget to pass, the ANC requires support from another major party, as dissent also arises from outside coalition members like the Economic Freedom Fighters, opposing tax increases.
Treasury officials noted the need for additional funding to address “new and persistent” spending pressures, which the proposed VAT increase would support in areas like health, education, and rail projects. Finance Minister Enoch Godongwana emphasized the decision process, stating alternatives to the VAT hike were thoroughly analyzed.
The revised budget is expected to generate an additional 28 billion rand ($1.53 billion) for the fiscal year starting April 1, 2025, significantly lower than the initial target of 58 billion rand. To address the budget deficit, projected at 5.0% of GDP for the 2025/26 fiscal year, additional funds will also be sourced from contingency reserves. It is anticipated that consumer inflation will rise due to the VAT increase.
The South African National Treasury has proposed a smaller VAT increase to address government spending needs, but it faces significant political challenges in gaining parliamentary approval. The budget highlights the complexities and disagreements within the current coalition government, potentially impacting future tax policies and public services funding.
Original Source: www.cnbcafrica.com
