Cape Town (AFP) – South Africa’s finance minister unveiled Wednesday a budget with a smaller increase in value-added tax than previously proposed, but it was immediately rejected by a key party in the unity government. Finance Minister Enoch Godongwana presented the revised budget to parliament three weeks after his first version was withheld at the last minute because it included a two-percentage-point VAT hike that was widely rejected.
The new version proposed raising VAT by one percentage point to 16 percent by the 2026/27 financial year, Godongwana said. This would be done in two steps, with a 0.5-point increase for the 2025/26 period and another for the following year, he said. His announcement was booed by several parliamentarians. The Democratic Alliance party, which is a pillar of South Africa’s young government of national unity, immediately announced it would not support the budget. “We will continue to fight for economic growth and jobs,” DA leader John Steenhuisen said.
Godongwana said the government also did not foresee inflation-linked increases to personal income tax brackets to finance its spending. Inflation rose to 3.2 percent in January. “Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth,” he said. However, “VAT is a tax that affects everyone,” he added.
South Africa is the continent’s most industrialised nation, but the sluggish economy is burdened by an employment rate that tops 32 percent, one of the highest in the world, with young people most severely affected. Inequality within the country’s 62 million people is one of the highest in the world, a legacy of white-minority rule voted out in 1994. Around two-thirds of the population is estimated to live in poverty, according to the World Bank. The economy grew by only 0.6 percent in 2024, held back by failing infrastructure, including massive power outages blamed on years of corruption, mismanagement, and theft.
– ‘Pressing needs’ –
The government faced “very real, and pressing, service delivery needs that are vital to our developmental goals and which cannot be further postponed,” the minister said. His budget laid out more than one trillion rands ($54.4 billion) in spending over three years on improvements to the transport network, the energy delivery system, and water and sanitation projects. The tax service would be allocated funds to improve its capacity at revenue collection, with billions of rands said to be uncollected.
The pro-business DA said that in its current form, the budget means “the people of South Africa will be poorer, and the future of the government is at risk.” It accused the ANC, the main party in the uneasy unity government installed after the May 2024 election, of not heeding warnings against tax increases. It would not give Godongwana’s budget the majority vote in parliament that it would need to pass, the party said in a statement.
© 2024 AFP
