South African Finance Minister Enoch Godongwana presented a revised budget proposing a one-point VAT increase to 16% by 2026/27. Despite this reduction from earlier plans, it faced immediate backlash from the Democratic Alliance, hindering its passage through Parliament. Key economic challenges persist, including high unemployment and poverty levels, prompting concerns about the government’s financial strategy.
On Wednesday, South Africa’s Finance Minister, Enoch Godongwana, revealed a revised budget proposing a smaller increase in value-added tax (VAT). This followed the withdrawal of an earlier budget proposal that included a two-percentage-point VAT hike. The new budget outlines an increase in VAT by one percentage point to 16% by the 2026/27 financial year, implemented in two increments: a 0.5-point rise for 2025/26 and another for the succeeding year.
Despite the adjustments, the budget was met with disapproval from several parliamentarians, prompting the Democratic Alliance (DA) to state their opposition. DA leader John Steenhuisen emphasized their commitment to advocating for economic growth and job creation. Godongwana, acknowledging inflation rates at 3.2% in January, indicated that there would be no inflation-linked increases to personal income tax brackets to support government spending, fearing that higher tax rates could hinder investment and economic growth.
South Africa faces severe economic challenges, including an employment rate exceeding 32%, high national inequality, and poverty impacting around two-thirds of its 62 million citizens. The economy grew only by 0.6% in 2024, affected by infrastructure failures and persistent power outages stemming from corruption and mismanagement. Godongwana acknowledged the urgent service delivery needs confronting the government, which cannot be postponed any further.
The budget allocates over one trillion rands ($54.4 billion) towards enhancing the transport network, energy systems, and water sanitation projects over the next three years. The tax service will receive funds to bolster its revenue collection capacity, addressing significant revenue losses. However, the DA warned that under the current budget structure, the South African populace faces increasing poverty, jeopardizing the future of the government. They indicated that the budget lacks the necessary parliamentary majority for passage due to their refusal to support it.
The revised South African budget unveiled by Enoch Godongwana sought to reduce the proposed VAT increase amid criticism of previous tax hike plans. The lack of support from the Democratic Alliance underscores significant political and economic challenges facing the nation. With high unemployment, persistent poverty, and infrastructure inadequacies, the new budget aims to address pressing service delivery needs while managing revenue collection effectively. However, the outlook appears dim, with warnings about increased poverty and political instability ahead.
Original Source: www.france24.com
