ANC Races Against Time to Honour VAT Reversal Agreement with ActionSA Amid Growing Budget Pressure
The 0.5% VAT Increase: In an effort to salvage the 2025 National Budget and maintain political stability within the fragile GNU, President Cyril Ramaphosa has conceded that the National Treasury is facing major challenges in identifying alternatives to the recently implemented 0.5% VAT hike. The admission came during his media address in Chiawelo, Soweto, following a Branch General Meeting over the weekend.
This comes after the African National Congress (ANC) secured the support of ActionSA by agreeing to roll back the VAT increase within 30 days, a condition critical to passing the budget. In return, ActionSA and other smaller parties offered their votes to get the tight budget proposal across the parliamentary line.
“From the current examination, Treasury has said, having looked at various areas where they can look, it doesn’t seem to be so,” said Ramaphosa.
The R13 Billion Question: Can VAT Be Reversed With No Harm Done?
The VAT increase was initially introduced to address a growing fiscal deficit and to stabilise government revenue. However, the hike triggered backlash for its impact on already struggling South African households, especially in light of rising living costs, unemployment, and stagnant economic growth.
Now, as per the ANC-ActionSA agreement, the Treasury and Parliament’s Finance Committee must urgently explore alternative revenue options that can cover an estimated R13 billion shortfall if the VAT is rolled back.
ActionSA’s Stand: Reform or Face Political Consequences
ActionSA, led by Chief Whip Athol Trollip, made it clear that the ANC cannot afford to delay or dodge this commitment. Trollip warned that the party’s support is conditional, and failure to reverse the VAT hike will have “consequences.”
The VAT clause also came with a demand for inflation-adjusted personal income tax brackets, aimed at preventing bracket creep and protecting the take-home pay of middle-income earners.
“We’ve made it clear to the ANC that South Africans cannot shoulder further tax pressure while wasteful government spending continues unchecked,” Trollip reportedly stated.
R28 Billion Budget Gap: ANC’s Growing Fiscal Tightrope
The broader fiscal context paints an even more daunting picture. South Africa is currently facing a R28 billion budget deficit, which the Treasury must reconcile through spending cuts, improved revenue collection, or alternative financing methods.
President Ramaphosa said the ANC is seriously considering proposals from coalition partners and stakeholders over the next 30 days, with a detailed report to be released after this consultative period.
“The proposal from various parties is being taken very seriously and that process will be engaged in for the next 30 days,” he noted.
GNU Under Pressure as Budget Passes by a Razor-Thin Margin
The 2025 budget passed with 192 votes in favour and 182 against, highlighting the political volatility within the GNU framework. The Democratic Alliance (DA), South Africa’s second-largest party, voted against the budget due to the VAT increase, forcing the ANC to seek support from a mix of smaller parties.
Those who backed the budget include:
- ActionSA
- United Democratic Movement (UDM)
- Build One South Africa (BOSA)
- Al Jamah-ah
- Pan Africanist Congress (PAC)
- United African Transformation (UAT)
- GOOD Party
- Patriotic Alliance (PA)
With the ANC no longer able to pass legislation alone, political compromises and policy trade-offs have become the new norm.
The Road Ahead: Can Treasury Find a Magic Bullet?
Reversing a tax hike while trying to maintain fiscal discipline is a tall order, especially in a constrained economy. If the National Treasury fails to find sustainable alternatives by May 1, 2025, the ANC risks not only breaking a political promise but also reigniting public outrage.
All eyes are now on Finance Minister Enoch Godongwana and his team, as the countdown begins to find a politically palatable and economically viable alternative.
Also read: Gauteng Secures R312.5 Billion in Investments at Inaugural 2025 Gauteng Investment Conference
