ANC's VAT hike faces uphill battle

A MOMMOTH task now awaits the ANC to garner enough support to pass the budget tabled by Finance Minister Enoch Godongwana, whose attempts to hike the VAT from 15% to 16% over two years has been met with a stern pushback by majority parties within the Government of National Unity (GNU). 

The DA, the second largest party in the GNU has already indicated that they would not support the current budget in its current format, while the Good Party confirmed it would give Godongwana’s budget its backing. 

Outside the GNU, the EFF and MK Party  made their intention to oppose the budget known. For the budget to be passed, the ANC, which has 39% of the vote, would need 50% plus one.

Tabling the 2025/26 budget in Parliament, Godongwana said there were persistent spending pressures in health, education, transport and security.

“The government proposes to increase the VAT rate by half a percentage point in 2025/26, and by another half percent the following year. This will bring the VAT rate to 16% in 2026/27,” Godongwana said.

Godongwana said the government was proposing no inflatory adjustment to personal income tax brackets, rebates and medical aid credits.

“These measures will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026-27,” he said.

He said the government has thoroughly examined the alternatives to raising VAT rate.

“We weighed up the policy trade-offs involved, including increases  to corporate tax and personal incomes taxes. Increasing corporate or personal tax rates would generate less revenue while potentially harming investments, job creation and economic growth,’ Godongwana said.

He also said the government was aware of the cost–of-living pressures faced by households, including the high food and fuel process and rising electricity and transportation costs.

“The government proposes to provide social grant increases that are above inflation as well as expanding VAT zero-rated food items. We are also not increasing the fuel levy for another year”

DA leader John Steenhuisen, speaking after Godongwana's budget speech, said a VAT increase was not the right way to proceed especially if it is not accompanied with bold economic reforms and focus on economic growth.

He said that there was no focus on growth and the government would again be in a scramble for money come later in October and February next year.

“We are willing to keep the door open to discuss before the issue comes to the floor of Parliament. There is still some time for us to have another chat and another look at what to negotiate on further,” he said.

“If we do not take bold decisions that go hard for growth and jobs, we will not lend our support and vote for the budget,” Steenhuisen said.

ANC and Mineral and Petroleum Resources Minister Gwede Mantashe said they had been engaging with the DA, their coalition partner, for some time.

“They want to counterpose everything else on battles they lost," said Mantashe in reference to the Basic Education Laws Amendment Bill, Expropriation Bill and the National Health Insurance Act.

“We say we can’t counter the processes of a budget. We can’t succumb to that. They exchange political issues for the budget,” he said.

He was optimistic that other parties would support the budget as it focused its allocation on spending in education, health and social grants, among others.

“Those are the issues that talk to our people... not half percent of VAT,” Mantashe said, before warning that a failure to pass the budget would polarise the country along racial lines.

MK Party parliamentary leader John Hlophe said Godongwana had other options available.

“Increasing VAT by any percentage is disastrous. The people who are to suffer the most are black people,” Hlophe said.

UDM parliamentary leader Nqaboyomzi Kwankwa said it was difficult not to support the budget.

“One has to take a decision that takes the county forward. We are not happy with some of the proposals,” said Kwankwa, adding that crafting a budget was a balancing act.

 Cosatu parliamentary counselor Matthew Parks said the labour federation was disappointed by the VAT increase proposal.

“This is to make life more difficult for people who drown in debt, who are straining to survive with the cost of living,” he said.

Economist Dawie Roodt said he doubted if the budget would be passed if the DA did not vote for it, even if the ANC approached the MK Party or the EFF.

“There is no way the EFF and MK Party will vote for VAT. It is not going to happen,” he said.

Pietermaritzburg Economic Justice & Dignity Group's, Mervyn Abrahams said that there were other possibilities for Godongwana to increase revenue, other than relying on VAT.

"While there are good things in the budget, we are still surprised that he increased VAT even by a lower percentage as that will have an impact across the entire economy, making all goods and services more expensive."

Abrahams said a tax holiday on the Government Employees Pension Fund would have been a better alternative.

Cape Times