South Africa’s Finance Minister Enoch Godongwana presented a revised budget proposing a smaller VAT increase to 16 percent by 2026/27. Despite these adjustments, the Democratic Alliance party rejected the budget, claiming it would harm the economic situation of citizens. The country continues to struggle with high unemployment, poverty, and the need for significant infrastructural improvements.
On Wednesday, South Africa’s Finance Minister Enoch Godongwana introduced a revised budget that featured a reduced proposed increase in value-added tax (VAT). Although the initial version included a two-percentage-point VAT hike, this was met with substantial disapproval and ultimately withheld. The new budget proposes a one percentage-point increase to 16 percent by the 2026/27 financial year, structured in two increments of 0.5 points each in the subsequent years.
Despite the smaller increase, the proposal faced immediate rejection from the Democratic Alliance party, a significant entity in South Africa’s coalition government. DA leader John Steenhuisen stated, “We will continue to fight for economic growth and jobs,” emphasizing the party’s opposition to the budget. Additionally, the Finance Minister indicated no expected inflation-linked increases to personal income tax brackets to facilitate government expenditures, despite inflation rising to 3.2 percent in January.
Godongwana argued that hiking corporate or personal income tax rates would yield less revenue and may adversely impact investment and job creation. However, he noted that VAT is a universal tax impacting all citizens. South Africa continues to grapple with a sluggish economy, an unemployment rate exceeding 32 percent, and significant inequality, remnants of the historical era of white-minority rule.
The country has a staggering rate of poverty, affecting approximately two-thirds of its 62 million residents. In 2024, the economy recorded a mere 0.6 percent growth, hampered by infrastructural failures, including severe power outages attributable to corruption and mismanagement. Godongwana acknowledged the government’s pressing service delivery needs, necessitating vital improvements in infrastructure and essential services.
The budget allocates over one trillion rands ($54.4 billion) for development in transport, energy, and sanitation projects. Furthermore, funds are designated for the tax service to enhance revenue collection, as billions remain uncollected. While the DA maintains that the current budget form will exacerbate the financial situation of South Africans and jeopardize the government’s future, they affirmed they would not support Godongwana’s budget in parliament, indicating it lacks the necessary majority for passage.
In summary, the revised budget introduced by Finance Minister Godongwana attempts to address South Africa’s economic challenges with a smaller VAT increase and substantial spending on infrastructure. Nonetheless, it has faced significant opposition from the Democratic Alliance, emphasizing the ongoing struggles with unemployment and poverty. As the government navigates these complexities, the budget’s acceptance remains uncertain, highlighting the contentious nature of fiscal policy within the coalition system.
Original Source: www.france24.com
