Finance Minister Enoch Godongwana on Wednesday revealed that while value-added tax (VAT) will remain at 15%, an agreement was made to protect funding towards education, health, and social grants.
Speaking during a briefing in Pretoria, Godongwana told the media that the budget sparked a “rigorous debate in a democracy”, which led to the government heeding the needs of ordinary citizens.
“I must say part of the difficulty we have not been talking about is what we know in SA as coalition politics. And there are lessons to be learnt by cabinet and legislature, and by ourselves.
“I am pleased that we will balance the budget without raising VAT and protecting vital services like education, health and social grants,” said Godongwana.
New fiscal framework
National Treasury is in the works of developing a new fiscal framework. This will not include increasing any other taxes, as it would be detrimental towards economic growth and jobs.
Godongwana further mentioned that it would worsen the country’s debt crisis, which is already serviced with over R1-billion per day.
Instead, he emphasised the importance of revenue collection and dealing with illicit financial flows.
The first step that they will be taking is revising economic assumptions using the latest available data, then generating updated fiscal projects. The next step will involve recalculating revenue projections and tax implications. And also looking into appropriate borrowing strategies.
This will be done through a consultation with all political parties and other stakeholders. Until the tabling of the revised fiscal framework, government services will continue to be funded under Section 29 of the Public Finance Management Act.
Funding for provinces and municipalities will continue under the 2024 Act. This will continue until the 2025 Division of Revenue Act is passed.
Backlash
Treasury faced backlash after presenting the fiscal framework to government ministers before the National Budget sitting in Parliament.
There was a charge against the 0.5% VAT increase, which was split into two financial years, 2025/26 and 2026/27. This move was to fund austerity measures.
The national budget was finally passed in Parliament with 194 members voting in favour of the fiscal framework. And 182 voted against it.
The ANC was supported by its partners in the government of national unity (GNU). However, this excluded the Democratic Alliance (DA) and Freedom Front Plus.
They also managed to sway ActionSA and Mmusi Maimane’s Build One South Africa to rally behind the budget.
VAT increase challenged in court
However, the DA successfully challenged the passing of the budget at the Western Cape High Court. Their move followed Treasury’s announcement to reverse the passing of the budget.
Godogwana describes the budget process under GNU as “messy”. He stated that a new approach needs to be taken now that the ANC is no longer the majority party.
“As you are aware, we used to have a budget with a dominant party, which is the ANC. One would go to Parliament, and the ANC would pass the budget. Now we are in a coalition government. And it takes two forms, GNU in cabinet, and in Parliament there are a number of political parties,” he said.
