South Africa’s finance minister, Enoch Godongwana, presented the highly anticipated 2025/26 national budget on Wednesday, weeks after its original due date. The budget includes key proposals aimed at boosting the country’s finances, but one of the most contentious elements—the proposed increase in Value-Added Tax (VAT)—has sparked significant opposition among political parties, particularly those within the coalition government.
Godongwana’s proposal to increase VAT by 0.5 percentage points in 2025/26, followed by another 0.5 percentage point increase in the subsequent year, would raise the VAT rate to 16% by 2026/27. This move, designed to help raise the revenue needed to address South Africa’s fiscal challenges, has been met with sharp resistance. Critics argue that such a hike would disproportionately affect the country’s poor, with several political parties, including the Democratic Alliance (DA), voicing strong opposition.
In a concession, Godongwana reduced the proposed VAT increase from an initial 1 percentage point hike suggested three weeks ago. However, even this revised proposal was rejected by several parties, including the DA, which has called for a complete overhaul of government spending rather than relying on tax increases.
Amid the VAT debate, Godongwana highlighted some of the more positive aspects of the budget, including a slight improvement in the country’s growth forecast, a narrowing fiscal deficit, and increased infrastructure spending. He emphasized that while the VAT increase is drawing much of the attention, the larger, more crucial conversation should focus on growing the economy to benefit all South Africans.
“A bigger, faster-growing economy, and the larger fiscal resources that come with it, would give us more room to meet more of our developmental goals. But the truth is, our economy has stagnated for over a decade,” Godongwana remarked during his address.
The proposed budget represents a critical test for the coalition government, which was formed after the African National Congress (ANC) lost its parliamentary majority for the first time since the end of apartheid in 1994. As political divisions deepen, Godongwana will need to garner support from a range of parties to ensure the final budget passes.
With the ongoing debates over key budget elements, the revised budget will be put to a vote in Parliament by the end of May. The outcome of that vote will be crucial in determining South Africa’s fiscal path forward as it faces growing economic challenges.
