New budget battle looms in South Africa as parties reject VAT increase

Weeks after the budget was first due to be delivered, South Africa’s finance minister Enoch Godongwana finally made the announcement on Wednesday.

But one of the main sticking points remains. An increase in value-added tax (VAT), which several political parties in the coalition government believe will hurt the poor.

"To raise the revenue needed, the government proposes to increase the VAT rate by half a percentage point in 2025/26, and by another half a percentage point in the following year. This will bring the VAT rate to 16 per cent in 2026/27," said Godongwana.

That was half the increase it suggested three weeks ago, but was still shot down by several parties.

A marginally improved growth forecast, a narrowing fiscal deficit, and greater infrastructure spending were among the major highlights of the budget.

"As much as the debate has been dominated by the proposed increase to value-added tax, the bigger debate must be about how we grow the economy for the benefit of all South Africans,” said Godongwana.

“A bigger, faster growing economy and the larger fiscal resources that comes with it would give us more fiscal room to meet more of our developmental goals. But the truth is that our economy has stagnated for over a decade."

Divisions over elements of the budget means Godongwana will need support from a range of political parties to get the revamped version approved.

The second biggest party in the coalition, the Democratic Alliance, which opposes tax hikes, is calling for a complete revision of government spending.

The budget is the biggest test of the fractious coalition government, formed after the ANC lost its parliamentary majority for the first time since the end of apartheid in 1994.

The final budget will be voted on towards the end of May.