VAT hike a ‘punch to the gut of already struggling South Africans’

Finance minister Enoch Godongwana’s 2025 budget speech  received mixed reactions from opposition parties. 

He delivered the speech in parliament on Wednesday after it was postponed on February 19 when parties in the government of national unity (GNU) could not agree on a proposed two percentage points VAT increase. 

The minister announced on Wednesday that the Treasury opted for a half a percentage point hike in each of the next two years, with the proposed increases set to generate R13.5bn in revenue in 2025/26, R30bn in 2026/27 and R32bn in 2027/ 28

Public infrastructure spending over the next three years will top  R1-trillion to grow the economy and create jobs. Spending is set to focus on three sectors: transport infrastructure (R402bn), energy infrastructure (R219.2bn) and water infrastructure (R156.3bn). 

DA leader John Steenhuisen said his party made it clear to the ANC in the GNU that “we would not support any increase in taxes, unless those increases were temporary, and the ANC agreed to a series of major reforms that would grow the economy, create jobs, reduce waste and bring down taxes within three years”. 

“The ANC refused to agree to these measures and instead insisted on two likely permanent VAT increases, which cumulatively will increase VAT by 1% over the next two years. As a consequence, the people of SA will be poorer and the future of the government is at risk.” 

EFF leader Julius Malema said: “This was not unexpected. They were playing tricks on us. The real intention was to increase VAT. They ran out of ideas how to generate revenue for the state. We will not support any increase in VAT. We agree on the need to support the SRD [social relief of distress grant], and invest in infrastructure. But let there be tax for the wealthy, those who buy buffaloes for R20m.” 

President Cyril Ramaphosa admitted the budget was a balancing act.

“There are 17,000 [unemployed] teachers in KZN, there are unemployed doctors. Every minister of finance has to juggle and find balance. He has made a difficult choice. Parliament must decide [on the budget] and bring a solution,” Ramaphosa said. 

UDM chief whip Nqabayomzi Kwankwa said: “It’s difficult not to support the budget. We are not happy with some of the proposals, but a budget is a balancing act. This budget is a proposal until parliament has passed it, but we will vote in support of the budget.”

MP Nhlamulo Ndhlela for uMkhonto we Sizwe called for the collapse of the GNU.

ACDP MP Steve Swart said: “Taxpayers are fed up. They are not getting value for their money. We can’t expect them to pay more taxes in the face of a logistics crisis, water and energy challenges. We have a massive, bloated cabinet and bailouts to SOEs, that’s one way to reduce expenditure because at the end of the day you have to get economic growth and create more revenue and create jobs.” 

Build One SA (Bosa) acting spokesperson Roger Solomons said the budget “is a punch to the gut of already struggling South Africans. In particular, the overstretched tax base will now effectively face a double tax. Working families will pay more in tax on at least two fronts to foot the bill for government’s unjustifiable choices”.

“Not only will VAT increase by 0.5 percentage points each year for the next two years, but there will be no inflationary adjustments to personal income tax brackets, rebates and medical tax credits this year.

“This means working, taxpaying South Africans will pay more income tax and receive less tax rebate benefits. By next year VAT will be 16%, and we are now at the peak pressure point of taxing citizens.

“Instead of making budget cuts to unnecessary spending, the GNU decided to squeeze the dwindling tax base for an extra R28bn in tax revenue this year,” said Solomons.

Freedom Front Plus national chair and finance spokesperson Wouter Wessels said hundreds of billions of rand were lost due to the BEE-related costs, “which compels government to pay more than market value for goods and services. Government and the people are exploited through the policy of BEE.”

“Taxpayers, who are already overtaxed, should not be punished for the failures of the past, corruption, state capture and poor policy directions.”

mkentanel@businesslive.co.za