Cape Town – Finance Minister Enoch Godongwana's budget announcement has been met with a mixed response, as South Africans face a looming VAT increase while the crucial Covid-19 Social Relief of Distress (SRD) grant receives a one-year extension. The budget, presented in Parliament on Wednesday, 12 March, has ignited debate over its impact on ordinary citizens and the country's economic future.
More than eight million SRD beneficiaries can breathe a sigh of relief as the R370 grant is extended until March 2026, with R35.2 billion allocated for this purpose. Godongwana noted that the SRD serves as a foundation for introducing sustainable income support for unemployed people, with its future form informed by a review of active labour market programmes expected by September 2025.
Godongwana also announced that social grants are allocated R284.7 billion in 2025/26, allowing an increase to the old age and disability grants by R130 to R2,315 in April, the Child Support Grant by R30 to R560 per month, and the foster care grant by R70.
"Twenty-eight million beneficiaries will access social grants. Ours is one of the most comprehensive social safety nets among emerging economies, reflecting our commitment to addressing poverty and inequality while keeping our spending sustainable," he said.
The proposed VAT hike has been met with fierce opposition, with opposition parties arguing that it places an undue financial strain on South Africans.
EFF leader Julius Malema expressed his skepticism, suggesting that government had planned a gradual VAT hike from the outset.
Malema said: "They were playing tricks on us. They said 2% hike, but the real intention was to increase VAT by 0.5% this year and another 0.5% next year, which would lead to 16%."
He criticised government for its lack of innovative solutions to generate revenue. “They’ve run out of ideas on how to generate revenue for the state. This is not an instruction to Parliament. In terms of the Public Finance Management Act, the minister is allowed to propose under Section 27 and Parliament must then debate and decide on it through committees,” he said.
Malema said that the EFF would not support any form of VAT increase. He rejected government’s claim that the VAT hike was necessary to sustain the R370 social relief of distress (SRD) grant, arguing that alternative revenue sources should be explored instead.
“We agree that the SRD grant must be protected. We also agree that there must be infrastructure investment. But let’s tax the rich. Let corporate tax be increased. Let there be tax increases on the wealthy people of South Africa – the ones who buy buffalos for R22 million,” he said.
Malema referenced a recent high-profile wildlife auction where a buffalo bull sold for R22 million at the Piet du Toit Wildlife Auction in the North West. The bull was bought by a consortium of four.
Colin Engelbrecht, president of Wildlife Ranching SA, defended the transaction, stating it was an investment in high-value genetics. "If the bull is bred with 40 buffalo cows valued at R100 000 each, it could produce 40 calves annually, leading to a return on investment within five years. South Africa has about 3 250 buffalo breeders," Engelbrecht said.
Malema insisted that individuals engaging in such high-value transactions should contribute more to state finances. “Those people should be made to pay and finance the social responsibilities of the state,” he insisted.
He said that his party, which seats in Parliament's finance committee, would push for amendments to the budget. “Through our participation [in the committee], we will amend the budget and redirect the monies government seeks to raise through increased VAT into corporate tax,” he added.
Similarly, DA leader John Steenhuisen was adamant that his party would not support the budget presented on Wednesday.
“The DA made it clear to the ANC in the GNU that we would not support any increase in taxes unless those increases were temporary. The ANC agreed to a series of major reforms that would grow the economy, create jobs, reduce waste, and bring down taxes within three years,” he said.
According to Steenhuisen, the ANC refused to commit to these measures and instead pushed for what he described as "two permanent VAT increases".
He warned: "As a consequence, the people of South Africa will be poorer and the future of government is at risk."
Steenhuisen argued that the root of the problems lay in the ANC’s reluctance to accept the outcome of the elections: “It is deeply unfortunate that the ANC is prepared to sacrifice South Africans and risk the economic future of the country rather than accept that it no longer has majority support.”
He emphasised that the ANC could not push the VAT increase through Parliament without the backing of other parties: "The ANC VAT budget doesn’t have a majority [support] and the DA won’t give it one. It is now up to the ANC to fix the mess it has created."
President Cyril Ramaphosa acknowledged the challenges in balancing the budget while addressing the country’s financial needs.
"The minister faced many challenges, including ensuring employment for 17 000 teachers in KwaZulu-Natal, addressing unemployed doctors and increasing pensions for the elderly. He had to juggle priorities," Ramaphosa said. "Every finance minister has to make difficult choices and he has done so."
Godongwana mentioned provisions to replenish funding for security functions and peacekeeping commitments, with R9,4 billion allocated for defence and correctional services.
"Over the medium term, R5 billion has been allocated to support South Africa’s participation in the Southern African Development Community (SADC) mission in the Democratic Republic of the Congo and to supplement existing peacekeeping activities. We will continue working with the Department of Defence on ways to modernise the defence force," he said.
He said combating financial crimes and corruption is essential to protecting the economy's integrity and fostering stability and social well-being.
Other budget highlights:
- VAT increase: A 0.5 percentage point rise in VAT from 15% to 15.5% is planned for 1 May 2025, with a potential second increase next year.
- Personal income tax brackets and rebates: No inflation adjustments to personal income tax brackets and rebates for the second consecutive year, potentially impacting households with wage increases.
- Public debt and deficit: Public debt is projected to stabilise at 75.5%.
- GDP by 2025/26, with a budget deficit of 5% for the fiscal year ending March 2025.
- Government spending: An annual average spending increase of 5.6%, from R2.4 trillion in 2024/25 to R2.83 trillion by 2027/28, with significant allocations for infrastructure and public sector wages.
- Debt-service costs: About 22c of every tax rand will be used to service national debt, highlighting fiscal pressures.
- Tax revenue shortfalls: Tax collections are R17 billion below target, influenced by reduced fuel levies and import VAT collections.
- National Health Insurance (NHI) funding: Allocations include R8.5 billion in indirect grants and R1.4 billion in direct grants for NHI initiatives, such as developing patient information systems.
- SA Revenue Services (Sars) funding: An additional R4 billion over three years is allocated to enhance tax collection capabilities.
- Sin tax increases: Excise duties on tobacco products are set to rise by 4.75%, affecting cigarettes, cigarette tobacco, and electronic nicotine delivery systems (vaping). For pipe tobacco and cigars, the increase is 6.75%.
The ANC needs a majority to pass the fiscal framework and related legislation on spending and revenue. This requires support from at least one of the three bigger parties – the DA, uMkhonto weSizwe Party or the EFF – along with smaller parties. However, the EFF and MKP have rejected supporting a budget containing a VAT increase.
For the first time, Parliament can amend the budget tabled on Wednesday, as not all GNU partners support the fiscal framework.
A final meeting between the ANC and DA on Tuesday failed to reach a compromise. The DA had indicated a willingness to support a 0.5% VAT hike if certain concessions were made. It submitted a document outlining non-budgetary commitments it believed would reduce government waste and spending.
However, the ANC dismissed these as unrelated to the 2025/26 budget and argued that existing spending review initiatives were sufficient.
Speaker Thoko Didiza expressed relief that the budget was finally presented after last month's delay.
"Unlike 19 February, which felt like a dress rehearsal, today the finance minister has officially presented the budget. Now, Parliament must examine it, gather community input and debate what would be the most appropriate budget for the country," Didiza said.
As Parliament prepares to debate and vote on the budget, South Africans are left to ponder whether Godongwana's plan represents a necessary balancing act to address the country's financial challenges or a tax trap that will further burden already struggling households.
