Challenges Ahead for South Africa’s 2025 Budget and Proposed VAT Hike

South African lawmakers will review the contentious 2025 budget and proposed VAT hike in the coming weeks. Finance Minister Godongwana’s revised budget, rejected by major parties, presents a challenge for passage before the fiscal year ends. If not approved by April 1, the government can spend on the previous year’s budget, while the VAT hike may be implemented by May 1 regardless of budget approval.

In the coming weeks, South Africa’s lawmakers will examine the 2025 budget proposal, which includes a plan for a value-added tax (VAT) increase. Finance Minister Enoch Godongwana submitted a revised budget on March 12; however, it faced resistance from major parliamentary parties, leading to a VAT hike reduction from two percentage points to one, implemented over two years. This situation leaves the budget’s approval uncertain before the current fiscal year’s end on March 31, marking a historic moment since it will be the first time this occurs post-apartheid.

Lawmakers will evaluate Godongwana’s budget across three phases. Initially, they will vote on the fiscal framework, which outlines economic policies and revenue projections. Following this, the division of revenue bill will be reviewed, detailing fund allocation among national, provincial, and local governments. The final stage involves the appropriation bill, which earmarks funds for specific departments and programs. All three bills must be sequentially approved, and lawmakers have until April 3 for this process.

If the budget is not enacted by April 1, the commencement of the new fiscal year, the government can continue to expend up to 45% of the previous year’s budget until the new budget receives parliamentary approval. However, new budgetary allocations cannot be enacted without legislative consent.

The National Treasury has indicated that the proposed VAT hike could be implemented by May 1, irrespective of the budget’s parliamentary passage. This implementation would remain effective for one year unless reversed by parliament, which would necessitate legislative adjustments without the requirement of tax repayment to taxpayers during this period.

The ANC’s strategy revolves around addressing the political fragmentation following their loss of a parliamentary majority. Secretary-General Fikile Mbalula stated that the party is willing to engage with all political factions to facilitate budget approval. Godongwana has expressed his openness to legislative proposals for budget adjustments, emphasizing the inherent trade-offs involved in the decision-making process.

In summary, South Africa’s upcoming budget discussions are critical, especially regarding the proposed VAT hike. With the revised budget facing significant opposition and the unique challenge of not passing before the fiscal year ends, the ANC must negotiate effectively with other parties. Timely passage is essential, given potential consequences if it does not occur by April 1, alongside the implications of the VAT hike implementation by May 1. The outcome of these discussions will play a pivotal role in shaping the country’s economic policy moving forward.

Original Source: www.tradingview.com