South Africa’s finance minister has unveiled a revised budget that includes a smaller value-added tax (VAT) increase than previously proposed, but has been met with strong opposition from a key party in the unity government.
Finance Minister Enoch Godongwana presented the new budget to parliament on Wednesday, three weeks after an initial proposal was scrapped amid backlash over a two-percentage-point VAT hike. The revised plan now proposes a one-percentage-point increase, taking VAT to 16 percent by 2026/27. The increase would be implemented in two stages: 0.5 percentage points in 2025/26 and another 0.5 points the following year.
Parliamentary Rejection
The announcement was met with boos from several MPs, including members of the Democratic Alliance (DA), a key player in the coalition government. The DA immediately rejected the budget, with party leader John Steenhuisen stating that they would continue to fight for economic growth and job creation.
Godongwana also said that the government would not adjust personal income tax brackets in line with inflation, arguing that increasing corporate or personal taxes would harm investment, job creation and economic growth.
Economic Challenges
South Africa, the continent’s most industrialized economy, continues to struggle with slow growth and high unemployment, currently above 32%, one of the highest rates globally, especially among young people.
Inflation rose to 3.2% in January, further straining economic conditions. In addition, inequality remains one of the highest in the world, with nearly two-thirds of the population living in poverty, according to the World Bank.
The economy is set to grow by just 0.6% in 2024, amid failing infrastructure, persistent power cuts and years of corruption and mismanagement.
Government Spending Plans
Despite opposition, the budget foresees spending of over a trillion rand ($54.4 billion) over the next three years, prioritizing transport, energy, water and sanitation projects. Funds have also been set aside to improve the country’s tax collection system, with authorities estimating billions of rand remain uncollected.
But the DA has warned that the budget will leave South Africans poorer and could jeopardize the government’s stability. The party has accused the ruling African National Congress (ANC) of ignoring warnings against tax increases and has threatened to block the budget in parliament, creating uncertainty about its approval.