Enoch Godongwana’s Budget Speech 2025 has sparked a lot of debate due to the proposed value-added tax (VAT). The plan, despite revisions, has been met with stiff opposition by various political parties and caused a deadlock within Parliament. This article explains the budget proposal and political reactions as well as the possible economic impact for South Africans.
What Is In The Budget Speech 2025?
In his speech, Minister Godongwana stressed the need for fiscal stabilisation and proposed a VAT increase to raise revenues and reduce the growing budget deficit. The government initially proposed raising the VAT from 15% up to 17%. However, after public backlash, they adopted a more gradual approach:
- VAT increase: The VAT will be increased to 15.5% by 1 May 2025. In 2026 it will go up another 0.5%, making the VAT 16%.
- Revenue Increase: The revenue increase is projected to be R13.5 billion by 2025/26. This will grow to R30 billion by 2026/27, and R32 billion by 2027/28.
Political Fallout: Why Are Parties Rejecting The VAT Increase?
The VAT increase has met with strong opposition despite efforts to mitigate its impact:
- Democratic Alliance: DA is against the increase. They claim it will burden South Africans who are already in a difficult situation. “The ANC wants to implement not just one but two VAT increases. John Steenhuisen, DA leader, said that this move would deepen poverty.
- Economic Freedom Fighters: EFF has condemned the budget as “reckless”, and warned that it ignores reality for the poor.
- COSATU: The trade-union federation warned that the VAT increase would have a disproportionate impact on lower-income families.
Why Is This VAT Increase Necessary?
The VAT increase is intended to help South Africa address its R60 billion deficit, which has been exacerbated due to factors such as reduced U.S. HIV/AIDS funds.
The government has allocated R28.9 billion to the healthcare sector, which will ensure the job security of 9,300 healthcare workers and 800 newly qualified physicians.
South Africa’s debt service costs are high. They amount to R389.6 billion for the current fiscal year, which is more than what it spends on education, health care, and policing.
What Happens If The Budget Impasse Continues?
If the Parliament is in deadlock, there could be serious consequences:
- Delays to Public Services: If the budget isn’t passed in time, key projects and funding allocations could be delayed.
- Investor Uncertainty The deadlock has already shaken investor confidence. Concerns over the country’s economic stability and credit rating are a concern. (ft.com)
Experts Say What
- Fiscal experts: While some economists think that the VAT increase is necessary to stabilize public finances, they warn that it must be accompanied by additional measures such as improved tax compliance and reduced wasteful spending.
- Policy analysts: Others suggest that the government focus on progressive tax changes rather than raising VAT, which is disproportionately affecting low-income families.
Can We Find A Compromise?
The Budget Speech 2025 has exposed deep divisions within South Africa’s political scene. The government claims that the VAT increase is necessary. However, the opposition and unions argue that there are alternative solutions.
It is crucial that political leaders continue to put the needs of South Africans first. The ultimate challenge will be to find a middle ground that allows fiscal sustainability while not worsening poverty.
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