With the National Budget Vote looming, South Africa faces critical decisions that could impact consumers and the economy. As tensions rise between political parties over proposed VAT increases, the future of fiscal policy hangs in the balance
Image: Se-Anne Rall
Should today’s National Budget Vote fail to go smoothly, yet again resulting in a Budget being passed in what will be another historical moment, the country will continue to be run as normal, although there may be adverse consequences for consumers.
At the nub of the disagreements among members of the Government of National Unity (GNU) is the ANC’s revised proposal, tabled in the middle of last month, that value-added tax (VAT) should be increased 0.5 percentage points from the current 15% from May this year, with another 0.5 percentage point increase to apply from the following April.
Last night, ActionSA claimed victory for stopping a VAT hike. In a statement, the party said “it will be the responsibility of Parliament, together with National Treasury, to urgently finalise alternative revenue and expenditure proposals within 30 days. This marks a critical step in protecting South Africans from regressive and unsustainable tax increases.”
This means that, before the VAT increase could have even been implemented, alternative ways of plugging the revenue gap needs to be found.
The DA hit back, claiming that “ActionSA has done a deal with the ANC to pass a 1% VAT hike over the next two years, making life more expensive for South Africans”.
In a day of back and forth amid speculation as to dissenting views, the ANC’s Chief Whip, Mdumiseni Ntuli told eNCA early yesterday that the DA refused to engage with all parties in a “disciplined and bilateral” way.
On NewzRoom Afrika, Ntuli said that the ANC, having engaged with all the other parties in the coalition, was confident that the Budget vote would pass.
This followed a post on X.com from DA leader, John Steenhuisen, at 7am, that: “Last night, the ANC refused to finalise an agreement on growth and spending reforms, imperilling the GNU. The DA will oppose the budget unless and until a written agreement is reached.”
Investec chief economist, Annabel Bishop, has previously explained that each VAT increase, if passed, will result in an additional 0.25 percentage points increase in inflation, which is currently at 3.2% as of February compared with a year ago.
Wichard Cilliers, director and head of market risk at TreasuryONE notes, however, that the Budget not being passed for another time will also have an adverse impact on the South African consumer.
“If the budget comes down to the DA rejecting it, we think the rand will come under pressure, as it will place the whole GNU under pressure,” he said.
Cilliers also noted that, depending on which parties joined forces with the ANC to have the Budget approved, there may have needed to be some horse trading, with the likelihood being of favours requested in return.
This, he explained, will adversely affect the consumer as the local currency will come under pressure which, combined with pending tariff announcements from US President Donald Trump, could see the rand move to levels above R18.50 against the greenback.
After the close of the local business market last night, the rand was at R18.39 having opened at R18.30 and reached an intra-day high of R18.42.
Old Mutual chief economist, Johann Els, however said that there would only be a weaker rand and general economic calamity if the budget moved to a situation in which South Africa ended up with much higher debt, which he did not foresee.
Cilliers said that, “for the man on the street, should there be a prolonged cycle of a weaker rand it could start to impact the inflation number of South Africa. Higher inflation will lead to higher interest rates, which in the long term will place the average Joe under more pressure."
Bishop had also noted that the new VAT proposal of a 0.25 percentage point increase from May would, if passed, remove 0.1 percentage point from economic growth on a yearly basis, and Investec only expects gross domestic product to reach 3% by 2029.
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