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Budget Postponement Over VAT Dispute Could Affect Grants, Frontline Services
Budget postponement over VAT dispute could affect grants, frontline services
By Lindi Botha | 20 February 2025 | 1:15 pm
In a first for democratic South Africa, the national budget speech was cancelled moments after it was due to be tabled in parliament by Finance Minister Enoch Godongwana on Wednesday 19 February.
The delay is a result of parties within the Government of National Unity (GNU) disagreeing over the budget, specifically Godongwana’s proposal to increase VAT from 15% to 17%.
In a media release published yesterday afternoon, John Steenhuisen, leader of the Democratic Alliance (DA), said that the postponement was a victory for the people, as it prevented an increase that would have broken the back of the economy.
“The postponement is due to the failure by the ANC, and specifically Finance Minister Enoch Godongwana, to engage meaningfully with the native proposals tabled by the DA. Following our defeat of the ANC’s plan to hike VAT, we will now fight with the same vigour to introduce a new budget that is anchored in growing the economy, rather than increasing taxes or debt.”
Speaking to Farmer’s Weekly, Prof Waldo Krugell, an economist from North-West University, said that the VAT hike was likely necessitated by the inflated state wage bill and the maintenance costs for state-owned enterprises.
“Maintenance has been neglected for so long that it now requires a massive cash injection, of around R50 billion to R60 billion.”
He, however, believed that a VAT increase was not politically feasible.
“The government has now reached the point where difficult decisions need to be made. I doubt the GNU can survive the Bela [Basic Education Laws Amendment], expropriation laws and a VAT increase.”
Should Godongwana not be able to table the VAT increase, Krugell expected grants and frontline services to bear the brunt.
“Government can’t scratch out extra money anywhere else to increase grants or pay teacher and doctor salaries, so these services will simply be reduced.”
As for addressing the inflated state wage bill, Krugell said that it would be impossible to see any reductions now, since the 5,5% state salary wage increase had been accepted this week.
“Government had previously budgeted R12 billion for early retirement packages for state employees, but it will take time for this to have an effect on the overall wage bill.”
During the parliament session leaders of political parties expressed mostly positive views on the postponement. George Michalakis, the DA’s chief whip, told parliament that the postponement sent a message that the GNU would not act as a rubber stamp for policies that will cripple the country.
Gayton McKenzie, leader of the Patriotic Alliance, said that during the past two weeks he had witnessed humility and a willingness to listen among political leaders.
“I congratulate the minister of finance for not pushing ahead to present a budget that the other parties in the GNU did not agree with.”
Multiple parties, and later economists, expressed their concern over the impact the postponement would have on markets, while noting that since this was the first budget tabled by the GNU, it needed to be done correctly to send the right message to the markets.
The budget is now expected to be tabled on 12 March.
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