Cape Town – A major political clash is brewing within South Africa's Government of National Unity (GNU) over the national Budget, as political parties find themselves deeply divided on how to balance the government's books. The central point of contention is a proposed increase in Value Added Tax (VAT), with the African National Congress (ANC) reportedly considering a 0.75 percentage point hike, a move that has been met with fierce opposition from various coalition partners.
The Economic Freedom Fighters (EFF), Democratic Alliance (DA), Patriotic Alliance (PA), Good party, and Freedom Front Plus (FF Plus) have all voiced strong objections to any VAT increase, citing concerns about the disproportionate impact on the poor and working class. This disagreement has already led to the postponement of the Budget, which was originally scheduled to be tabled on 19 February and is now set for 12 March.
EFF leader Julius Malema has dismissed reports that the ANC has approached his party with a proposal for the 0.75 percentage point VAT increase. Malema has consistently rejected any form of VAT increase, arguing that it would disproportionately burden the poor. Instead, he advocates for an increase in corporate taxes and the introduction of a wealth tax.
Speaking to reporters at his birthday celebration in Tembisa on Monday, Malema refuted the Sunday Times' report that the ANC was seeking a deal with the EFF, stating: "No one is talking to us, there has never been any kind of engagement between the EFF and the ANC. We wanted them to present a Budget, we said let there be a discussion and the people will decide if they want it or not."
Malema emphasised that the focus should be on stimulating economic growth and creating jobs, suggesting that South Africa's vast mineral resources could be better leveraged for economic benefit. "We have got a lot of minerals in this country which can be benefited from," he said. "That is the kind of language we should be having a discussion on and not whether to increase [VAT by] 2% or 0.75%." He warned that the coalition government's failure to pass the Budget would put the country in "trouble," essentially operating on "autopilot."
The DA, the second-largest party in the GNU, has also vehemently opposed any increase in the VAT rate. In a statement released on Sunday, the party's spokesperson on finance, Mark Burke, described the proposed 0.75 percentage point increase as a "tone-deaf" move by the ANC that threatens South Africa's economic stability.
"Just as the ANC refused to listen to objections from its coalition partners in the lead-up to its failed February Budget, the ANC now refuses to cut the fat. Instead, the formerly 'pro-poor' ANC continues with its campaign to increase VAT. This when we all know that resilient South Africans across the board are stretched to the breaking point," Burke stated.
The DA has proposed alternative cost-cutting measures, including reducing funding for Sector Education and Training Authorities and the National Skills Fund, ending the South African National Defence Force (SANDF) troop deployment in the Democratic Republic of the Congo, and abolishing the Youth Development Agency and the Petroleum Agency SA.
Burke further criticised the ANC's alleged threat to approach the EFF to pass the VAT-based budget, saying: "The DA refuses to be held hostage or intimidated by the ANC’s blatant threat to approach the EFF to pass this VAT-based budget. This is not responsible, or collaborative governance — it is reckless and places further strain on the economy."
The Patriotic Alliance (PA) has also firmly rejected a VAT increase. PA spokesperson Steve Motale stated: "The PA does not support the reported proposed 0.75 percentage point VAT increase. We remain adamant that a more capacitated and supported SARS [South African Revenue Service] could bring in as much as another R450-billion a year. All efforts must therefore be channelled towards boosting SARS to achieve its mandate."
The Good party's secretary-general, Brett Herron, echoed similar sentiments, telling Daily Maverick that his party opposes a VAT increase "since it is a regressive tax and disproportionately affects middle- to lower-income households and of course most disproportionately affects the poorest people." The Good party has suggested alternative funding mechanisms, such as adjusting tax credits on retirement fund contributions, introducing a wealth tax or "a special wealth tax on super wealth," and strengthening SARS to improve tax compliance and revenue collection.
The Freedom Front Plus (FF Plus) has also expressed its opposition to any VAT increase. The party's national chairperson, Wouter Wessels, told Daily Maverick that "an increase will harm the economy and lead to more unemployment and impoverishment." The FF Plus has proposed cost-cutting measures that it believes would address the Budget deficit more effectively than raising taxes or VAT.
Rise Mzansi's Mabine Seabe stated that the party does "not support tax increases, especially given the negative impact they would have on the poor, working-class and middle-class households." However, he added that "should the 0.75 percentage point increase be a fait accompli, it will be important that the basket of VAT-exempt goods is increased in order to protect said households."
Seabe acknowledged Finance Minister Enoch Godongwana's difficult task of balancing the government's books, saying: "Money is extremely tight and there are limited available options — primarily being cuts, increased taxes or borrowing — each with its limitations and negative implications. We are in this crisis because of poor leadership, bad governance and corruption, particularly over the last 15 years. This is the reality that the finance minister needs to articulate and solve. We can no longer kick the can down the road."
Al Jama-ah spokesperson Nisa Hendricks stated that the party supports the proposed VAT increase "on condition that all items in the normal food basket of social grant beneficiaries are zero-rated, and that there is a process to reduce VAT by 2030 to just 10%."
The Inkatha Freedom Party (IFP) declined to comment, stating that it would await the finalisation of the budgeting process in Cabinet before commenting. However, the IFP has previously expressed its opposition to the initial two percentage point VAT increase proposal, stating that it would "run contrary to the commitments" of the GNU.
The United Democratic Movement (UDM) deputy president, Nqabayomzi Kwankwa, also previously told Daily Maverick that his party was "opposed to any increase in VAT," but said it was "difficult to engage" with the current proposal as the GNU clearing house mechanism had not yet met.
The clearing house, a multiparty negotiating committee established to address policy disputes, was scheduled to meet on Tuesday, 25 February, but the meeting was postponed to Friday, 7 March. Deputy President Paul Mashatile chairs the dispute resolution committee.
The ongoing dispute over the Budget and the proposed VAT increase highlights the challenges facing the GNU in achieving consensus on key policy issues. The diverse perspectives and priorities of the various coalition partners are creating significant hurdles in the decision-making process, raising concerns about the stability and effectiveness of the government. The outcome of the Budget negotiations will have significant implications for South Africa's economy and its citizens, particularly the most vulnerable.
