South Africa’s Revised Budget Faces Backlash Amid Economic Concerns

South Africa’s Finance Minister unveiled a revised budget proposing a smaller VAT increase, facing immediate rejection from opposition parties. Despite reducing the VAT hike from 2% to 1%, significant concerns remain regarding the economy’s sluggish growth and high unemployment. The proposed budget includes extensive infrastructure spending but continues to face criticism from key political figures.

On Wednesday, South Africa’s Finance Minister Enoch Godongwana presented a revised budget, proposing a smaller increase in value-added tax (VAT) than previously announced. Initially, Godongwana had planned a two-percentage-point VAT hike, which faced widespread rejection. In the new proposal, the VAT would instead rise by just 1 percentage point to 16% by the 2026/27 financial year, implemented incrementally over two years.

The response from parliament was immediate and negative, particularly from the Democratic Alliance (DA), a key party in the current unity government. DA leader John Steenhuisen announced their opposition to the budget, emphasizing their commitment to advocating for economic growth and job creation. Despite the reduced tax hike, if the budget fails to secure support, it may jeopardize essential public services due to pressing financial needs.

Amid rising inflation, which reached 3.2% in January, Godongwana indicated that there would be no inflation-linked adjustments to personal income tax brackets. He argued against increasing corporate or personal tax rates, claiming it would hinder investment and economic growth. The finance minister defended the VAT increase, stating it impacts all citizens and is necessary for the nation’s financial health.

South Africa, the most industrialized nation on the continent, continues to struggle with an unemployment rate exceeding 32%, significantly affecting the youth. A stark inequality remains, with nearly two-thirds of the population living in poverty, as reported by the World Bank. The economy only grew by 0.6% in 2024, hampered by poor infrastructure and ongoing power outages stemming from governance issues.

Godongwana’s budget outlines over R1 trillion (approximately NZ$95.1 billion) for essential improvements to infrastructure, including transport, energy supply, and water services. Additionally, funds are allocated to enhance the tax service’s capacity to collect outstanding revenues. The DA described the current budget as a threat to the citizens’ welfare and warned it would not secure the majority vote required for passage in parliament. They criticized the ruling ANC party for neglecting warnings regarding tax increases.

In summary, Finance Minister Enoch Godongwana’s revised budget has faced significant opposition, particularly from the Democratic Alliance, due to proposed VAT increases amidst dire economic conditions. The budget aims to allocate funds for crucial infrastructure improvements while sparing citizens from larger tax burdens. However, the rising unemployment and inequality indicate broader challenges for South Africa’s economy that may influence future governmental decisions.

Original Source: www.nzherald.co.nz