Finance Minister Enoch Godongwana faced a tough crowd on Friday as he defended the budget he presented earlier in the week, which included a one percentage point VAT increase staggered over two years. The battle to have the budget approved by parliament was underway, with sceptical and sometimes hostile MPs questioning the decisions made.
Godongwana addressed concerns about protests against cuts to the health budget, noting that the last march was to his office. He emphasized the importance of providing services to communities, despite the disagreements over tax increases to fund these services.
The minister took full responsibility for announcing the first VAT increase since 2018, a decision that has been met with opposition from the Democratic Alliance. The lack of support from the ANC’s biggest coalition partner raised the possibility of amendments to the budget for the first time in the democratic era.
Godongwana highlighted the underfunding of the military and the challenges faced by the South African National Defence Force during the deployment in the Democratic Republic of the Congo. He stressed the need for more funding for health, education, security, and commuter rail services, which were among the reasons for increasing the VAT rate.
The minister had initially planned for a two percentage point VAT hike but had to abandon the idea due to resistance from various parties. He emphasized the need to find additional revenue to invest in infrastructure that would improve public transportation and reduce the high cost of commuting for workers.
The budget presented by Godongwana laid the groundwork for investing in areas that would stimulate economic growth, with a forecasted average of 1.8% annually over the next three years. The treasury was committed to fiscal consolidation and achieving a growing primary surplus, with gross loan debt expected to stabilize at 76.2% of GDP in 2025-26.
Overall, Godongwana’s budget faced challenges and criticisms from various quarters, but he remained steadfast in his commitment to providing essential services and investing in the country’s future growth. South Africa’s economic forecast has been revised, with the growth rate now expected to be almost one percentage point higher than initially predicted. This adjustment is attributed to the reduced VAT increase, which has had a positive impact on the overall economic outlook.
As the budget process unfolds, there is anticipation of potential challenges and disagreements among the committees involved. According to the Money Bills Amendment Procedure and Related Matters Act, the finance committees have a limited timeframe of 16 days to review and respond to the minister’s revenue proposals. The reports generated by these committees must then be considered by the National Assembly and the National Council of Provinces within the same timeframe.
Following this initial review process, there will be further engagement with the minister of finance and the national treasury to finalize the fiscal framework. It is crucial to note that starting from April 1st, expenditure will be governed by the Public Finance Management Act, allowing departments to spend up to 45% of last year’s allocations for the first four months in the absence of a passed budget.
During the budget discussions, Economic Freedom Fighters (EFF) MP Sinawo Thambo raised concerns about the country’s economic challenges and fiscal deficits, placing blame on the ANC for mismanagement and corruption. Thambo criticized the government’s borrowing practices, highlighting the lack of tangible infrastructure developments despite significant financial investments.
Thambo emphasized that relying solely on taxation to address expenditure costs is unsustainable and cannot stimulate economic growth. He expressed skepticism about the effectiveness of current fiscal strategies and called for a shift towards more sustainable economic policies.
The input from Thambo and other EFF MPs suggests a lack of support from opposition parties, including the ANC, to pass the budget without the votes of the DA. EFF leader Julius Malema has made it clear that they will not align with the ANC on budgetary matters.
Overall, the budget process is expected to be challenging, with differing opinions and concerns raised by various political parties. As South Africa navigates its economic recovery, it is essential to address underlying issues of mismanagement and corruption to ensure sustainable growth and development.
