CAPE TOWN, March 12 (Reuters) – South Africa’s National Treasury on Wednesday proposed a smaller hike in value-added tax in a revised budget aimed at ending deadlock within the coalition government, but it was not clear if it would get the support in parliament to pass.
Last month, the Treasury had proposed a 2-percentage-point hike in VAT in its initial budget, but the African National Congress’ biggest coalition partner refused to back the move, forcing the budget to be postponed.
On Wednesday, the Treasury instead proposed raising VAT by 0.5 percentage points from its current level of 15% on May 1, followed by another 0.5-percentage-point increase in 2026.
Minutes before Finance Minister Enoch Godongwana took the podium in parliament, the leader of the Democratic Alliance, the second-biggest party in government, said his party was still opposed.
“The DA will not support the budget in its current form,” said John Steenhuisen on X.
The budget has been the biggest test so far of South Africa’s fractious coalition government, formed last year after the ANC lost its parliamentary majority for the first time since the end of apartheid in 1994.
The ANC needs at least one other big party behind it to pass the budget, and parties outside of the coalition, such as the Economic Freedom Fighters, are also opposed to raising taxes.
The ANC and the DA are ideologically opposed on many issues but have managed to govern together so far with occasional disputes that have not derailed the coalition.
SPENDING PRESSURES
The Treasury said the government faced “new and persistent” spending pressures that required additional funding, and the tax increase would fund health, education and rail projects.
“This decision was not taken lightly. We thoroughly examined alternatives to raising the VAT,” Godongwana said, adding a tax hike was the best way to avoid further spending cuts.
Tax measures proposed in the latest budget would generate an additional 28 billion rand ($1.53 billion) of revenue in the fiscal year that starts on April 1 2025, Godongwana said, less than the 58 billion the Treasury had initially hoped to raise.
Additional funds would be drawn from contingency reserves, revised budget documents showed.
The budget deficit is now seen at 5.0% of gross domestic product (GDP) in the 2025/26 fiscal year and debt is expected to peak at 76.2% of GDP in 2025/26.
Consumer inflation is expected to rise due to the VAT hike, the budget showed.
($1 = 18.3462 rand)
(Roelf reported from Cape Town and Gumbi and Anders from Pretoria; Additional reporting by Nqobile Dludla and Sfundo Parakozov in Pretoria; Writing by Nellie Peyton; Editing by Alexander Winning, Alexandra Hudson)
