Finance Minister Enoch Godongwana faces tough fiscal decisions as South Africa navigates balancing social relief and economic sustainability.
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FINANCE Minister Enoch Godongwana has emphasised the tough fiscal choices that South Africa must make, highlighting the difficult decision of either raising Value-Added Tax (VAT) or reducing the Covid-19 Social Relief of Distress (SRD) grant.
As reported by the Sunday Times, Godongwana confirmed that South Africa faces challenging trade-offs, including potentially increasing VAT or cutting back on the SRD grant.
“If you allowed me to cut the SRD, I wouldn’t increase anything. I’m faced with increased expenditures that are not in the budget,” Godongwana said.
The most recent extension of the SRD grant, initially implemented in 2020 as a short-term measure to support financially vulnerable citizens during the Covid-19 pandemic, is set to expire in March 2026.
The initiative currently costs the government over R35 billion per year.
Godongwana clarified that, although he had previously approved the SRD grant, initially introduced as a temporary Covid-19 relief measure, its continuation would necessitate identifying an alternative funding source.
“If it continues, it’s not affordable; we’ll have to find a revenue source,” he stated.
A proposal to raise VAT by 2% (from 15% to 17%) was made earlier this year, aiming to generate an additional R58 billion to fund essential infrastructure and social programmes. However, the proposal was shelved, and the February 2025 Budget Speech was postponed amid strong political resistance.
Godongwana's dilemma emphasises the difficulty of striking a balance between the necessity of social assistance during difficult economic times and fiscal sustainability.
Raising VAT would increase the cost of living for South Africans who are already struggling financially, even though it could provide much-needed cash to maintain the SRD grant and pay for necessary services.
On the other hand, cutting the subsidy would impact more than eight million beneficiaries, which would exacerbate poverty and stoke social unrest.
Many political parties, including the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF), have condemned the hike, citing concerns over the cost of living.
The budget is set to be tabled this week, although it’s still unclear whether it will be approved or not.
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