This is why Treasury wants a VAT increase | Budget 2025

Leaked copies of Finance Minister Enoch Godongwana's Budget Speech show that Treasury had proposed a 2% increase on the Value Added Tax, inorder to fund wage increases for public servants, retain teachers, doctors and also to expand the government's early childhood development opportunities. 

A 2% increase on the VAT would have raised the VAT to 17%, however, the proposal was widely rejected during an emergency Cabinet meeting called ahead of the Budget Speech on Wednesday. 

According to a leaked speech of what Godongwana would have presented to South Africans on Wednesday, Treasury was calling for a 2% increase on the VAT to fund the wage bill of public servants as well as to fix South Africa's crippling rail system.  

Gondongwana's prepared speech would have read: "After careful analysis of the trade-offs, we have chosen the most responsible path forward. We propose to raise the VAT rate by 2 percentage points to 17 percent – a necessary step that will enable us to:

- Fund public sector wage increases for our civil servants

• Expand early childhood development opportunities for our children

• Retain the teachers, doctors, and essential frontline workers that serve our communities

• Revitalise our commuter rail system to better serve working-class families

• Provide above-inflation increases to social grants for our most vulnerable

Cabinet Ministers in the Government of National Unity, including the DA, PA, IFP, FF+, PAC and others, could not find consensus on the matter and it was decided in an unprecedented move, that the Budget Speech would be postponed for the first time since 1994. 

Cabinet spokesperson Khumbudzo Ntshaveni said the ministers needed more time to engage on the issues.

The amended Budget Speech will now be tabled on March 12, 2025, after further consultations with the parties in President Cyril Ramaphosa's GNU 

Speaking during a press conference held after the Budget Speech was postponed, Godongwana explained further that South Africa needed to find ways to fund its priorities. Godongwana was asked during a press conference if the 2% VAT proposal was the only contentious matter on the table during the Cabinet proceedings. 

"What we are grappling with is not necessarily the matter of 2%, given the challenges we face as a country, how do we fund them, do we continue cutting expenditure, we need to find ways of funding our priorities," said Godongwana.

Gondongwana said emphatically during the press conference that he would listen to inputs about the Budget, but he emphasized that it was the President who had the executive authority to decide the way forward, not others, including those who were protesting in the streets of Parliament and those revolting from within Cabinet.

Ntshaveni when asked about the divisions, attempted to shield the ANC from the 2% VAT proposal, saying Treasury had a responsibility to ensure that it balanced the books and noted that it was a collective decision of the GNU ministers to postpone the Budget to allow further engagement on the issue. 

MK Party, EFF calls for Budget to go ahead 

The EFF, MK Party, UDM and the ATM were among the parties that rejected the proposal to postpone the budget. 

EFF leader Julius Malema said the Budget Speech should proceed, saying the Government of National Unity was now being relegated to petty party politics. He said there was no different parties in the executive, but one executive and the budget should proceed and be debated accordingly. 

The MK Party's chief whip, Mzwanele Manyi, also called for the budget to proceed, while the UDM's MP Nqabayomzi Nkwankwa said the party knew nothing about the decision to postpone the Budget and called for it to proceed. 

ATM leader Vuyo Zungula also called for Godongwana to present his Budget Speech, saying the notion of assuring the markets was problematic, as the House belongs to the people of South Africa, rather than capital.

He called for the parties to be allowed an opportunity and says an indefinite postponement is unacceptable. 

Meanwhile, the DA, PA, IFP, FF+, Good, Al Jama-ah, PAC and other parties in the GNU, agreed to the postponement, with the DA saying in a press statement that the postponement was a victory for the South African people. 

"The postponement of the Minister of Finance’s 2025/26 National Budget Speech today is a victory for the people of South Africa, as it prevents the implementation of a 2% VAT increase that would have broken the back of our economy.

"The postponement resulted from the DA’s resolute opposition to the ANC’s plan to hike VAT at a time when millions of South Africans are already suffering under a cost of living crisis," said DA leader John Steenhuisen.

Good leader Patricia De Lille said all parties in the GNU agreed to the postponement, while PA leader Gayton McKenzie applauded the ANC for being humble and accepting space to deliberate further on the matter. 

IOL