South Africa’s Finance Minister, Enoch Godongwana, unveiled the country’s revised 2025 budget on Wednesday, announcing a smaller-than-planned value-added tax (VAT) increase. However, the decision has been met with strong opposition from parliament and the Democratic Alliance (DA), a key player in the national unity government.
Initially, the government had proposed a sharp VAT hike to address revenue shortfalls, but political disagreements led to a compromise: a staggered increase over two years. VAT will rise by 0.5% in 2025/26 and another 0.5% in 2026/27, bringing the total rate to 16%.
Political Fallout: DA Rejects the Budget
Despite the scaled-down increase, the announcement was met with boos in Parliament. The Democratic Alliance (DA) immediately opposed the budget, arguing that it would hurt ordinary South Africans and slow economic recovery.
“We will continue to fight for economic growth and jobs,” said DA leader John Steenhuisen, reinforcing the party’s position against any tax increases that could burden consumers.
The party has vowed to withhold its support, raising concerns over whether the budget will secure the necessary votes for parliamentary approval.
Government’s Justification: Why VAT Instead of Income Tax?
Defending the tax plan, Godongwana emphasized that increasing corporate or personal income taxes would discourage investment and worsen South Africa’s already dire unemployment rate. With over 32% of the population jobless and two-thirds living in poverty, the government argues that VAT is the fairest way to raise revenue for essential public services.
The revised budget also outlines an allocation of over R1 trillion ($54.4 billion) over three years to improve infrastructure, energy supply, and public services. It also increases funding for the South African Revenue Service (SARS) to recover billions in uncollected taxes.
The Economic Reality: Can South Africa Afford This Budget?
South Africa’s economic growth remains weak, with GDP projected to grow just 0.6% in 2024. Critics argue that the VAT hike could slow consumer spending and deepen economic inequality, rather than drive long-term stability.
Meanwhile, business leaders and economic analysts are closely watching the parliamentary battle over the budget, as failure to pass it could create uncertainty in the fragile unity government.
As South Africa grapples with these economic and political challenges, the coming weeks will be critical in determining whether the proposed budget survives or if further compromises will be necessary.
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