Budget hangs in the balance as DA opposes VAT increase

The South African government's 2025/26 budget, unveiled by Finance Minister Enoch Godongwana on Wednesday, faces an uncertain future with the DA announcing its intention to withhold support due to the proposed 0.5% increase in Value Added Tax (VAT).

The DA is the second largest party in the Government of National Unity (GNU) and the situation could spell trouble for the government's budgetary plans which relies heavily on coalition cooperation.

Tabling the 2025/26 budget in Parliament, Finance Minister Enoch Godongwana said there were persistent spending pressures in health, education, transport and security.

“The government proposes to increase the VAT rate by half a percent point in 2025/26, and by another half a percent point the following year. This will bring the VAT rate to 16% in 2026/27,” Godongwana said.

But DA leader John Steenhuisen, speaking after Godongwana's budget speech, said they would not be voting for the budget in its current form.

“We have been very clear from the beginning that we don’t believe a VAT increase is the right way to proceed especially if it is not accompanied with bold economic reforms and focus on economic growth,” Steenhuisen said.

He said that there was no focus on growth and the government would again be in a scramble for money come later in October and February next year.

“There are number of huge bold announcements that could have been made today and send the right message.”

Steenhuisen said for the budget to be passed, the ANC, which has 39% of the vote, would need 50% plus one and parties wanting to support the increase of 1% over two years can do so.

“We are willing to keep the door open to discuss before the issue comes to the floor of Parliament. There is still some time for us to have another chat and another look at what to negotiate on further,” he said.

“If we do not to take bold decisions that go hard for growth and jobs, we will not lend our support and vote for the budget,” Steenhuisen said.

ANC and Mineral and Petroleum Resources Minister Gwede Mantashe said they had been engaging with the DA, their coalition partner, for some time.

“They want to counter pose everything else on battles they lost," said Mantashe in reference to the Basic Education Laws Amendment Bill, Expropriation Bill and the National Health Insurance Act.

“We say we can’t counter the processes of a budget. We can’t succumb to that. They exchange political issues for the budget,” he said.

He was optimistic that other parties would support the budget as it focused its allocation on spending in education, health and social grants, among others.

“Those are the issues that talk to our people... not half percent of VAT,” Mantashe said, before warning that a failure to pass the budget would polarise the country along racial lines.

 When tabling the budget Godongwana said the government was proposing no inflatory adjustment to personal income tax brackets, rebates and medical aid credits.

“These measures will raise R28 billion in additional revenue in2025/26 and R14.5 billion in 2026-27,” he said.

He said the government has thoroughly examined the alternatives to raising VAT rate.

“We weighed up the policy trade-offs involved, including increases  to corporate tax and personal incomes taxes. Increasing corporate or personal tax rates would generate less revenue while potentially harming investments, job creation and economic growth,’ Godongwana said.

He also said the government was aware of the cost–of-living pressures faced by households, including the high food and fuel process and rising electricity and transportation costs.

“The government proposes to provide the social grant increase that are above inflation as well as expanding VAT zero-rated food items.

“We are also not increasing the fuel levy for another year, saving consumes around R4 billion.”

However, other parties have rejected the VAT increase with MK Party parliamentary leader John Hlophe saying Godongwana had other options available.

“Increasing VAT by any percentage is disastrous. The people who are to suffer the most are black people,” Hlophe said.

UDM parliamentary leader Nqaboyomzi Kwankwa said it was difficult not to support the budget.

“One has to take a decision that takes the county forward. We are not happy with some of the proposals,” said Kwankwa, adding that crafting a budget was a balancing act.

 Cosatu parliamentary counselor Matthew Parks said the labour federation was disappointed by the VAT increase proposal.

“This is to make the life more difficult for people who drown in debt, who are straining to survive with the cost of living,” he said.

Parks said there were other alternatives in place to the VAT increase.

Economist Dawie Roodt said he doubted if the budget would be passed if the DA did not vote for it, even if the ANC approached the MK Party or the EFF.

“There is no way the EFF and MK Party will vote for VAT. It is not going to happen,” he said.

Roodt said should the budget be not passed, Godongwana would have to go back to the drawing board and redraft it,” he said.

In response to Godongwana’s budget speech, civil society organisation Black Sash expressed concern, saying the minister failed to prioritise investment in the majority of those residing in South Africa.

"While it would be expected that we should be grateful for the social grant increases, and the extension of the Social Relief of Distress (SRD) Grant, it begs the question whether it is enough of a buffer to counter the VAT increase of 0.5% increase which disproportionality affects the poor," spokesperson Oliver Meth said.

Pietermaritzburg Economic Justice & Dignity Group's, Mervyn Abrahams said that there were other possibilities for Godongwana to increase revenue, other than relying on VAT.

"While there are good things in the budget, we are still surprised that he increased VAT even by a lower percentage as that will have an impact across the entire economy, making all goods and services more expensive."

Abrahams said a tax holiday on the Government Employees Pension Fund would have been a better alternative.

mayibonwge.maqhina@inl.co.za