South Africa’s Revised Budget Sparks Controversy Despite Tax Hike Reduction

South Africa’s Finance Minister Enoch Godongwana presented a revised budget, proposing a smaller VAT increase to 16 percent amidst immediate opposition from the Democratic Alliance party. The budget aims to address infrastructure and service delivery but faces challenges due to high unemployment and economic inequalities.

In a recent parliamentary session, South Africa’s Finance Minister Enoch Godongwana revealed a revised budget that proposes a one-percentage-point increase in the value-added tax (VAT), raising it to 16 percent by the 2026/27 financial year. This proposal follows the withdrawal of his previous budget, which suggested a more substantial two-percentage-point hike that faced widespread disapproval. The planned increment will occur in two phases: an initial 0.5-point increase in the 2025/26 period followed by another in the subsequent year.

Despite the scaled-back tax proposal, the Democratic Alliance party quickly voiced its disapproval, indicating it would not support the budget. DA leader John Steenhuisen emphasized their continued commitment to advocating for economic growth and job creation. Godongwana asserted that the government does not plan to implement inflation-linked increases to personal income tax, suggesting that raising these rates would hinder investment and economic growth.

With an inflation rate of 3.2 percent recorded in January, the finance minister highlighted the challenges present within South Africa’s economy, which is struggling with a staggering unemployment rate exceeding 32 percent, particularly impacting young individuals. The country, home to 62 million citizens, grapples with severe inequality and widespread poverty, as indicated by the World Bank.

The budget outlined more than one trillion rands (approximately $54.4 billion) earmarked for crucial infrastructural improvements in transport, energy, and sanitation over the next three years. Godongwana also mentioned the necessity to enhance the tax service’s capacity regarding revenue collection, as a significant amount of potential revenue remains uncollected.

However, the Democratic Alliance critiqued the budget’s current form, stating it would exacerbate poverty among South Africans and jeopardize the future of the government. The party accused the ruling African National Congress (ANC) of disregarding warnings against tax increases, pledging to withhold the critical majority vote needed for the budget’s passage in parliament.

The revised budget introduced by the South African Finance Minister, featuring a reduced VAT increase, has faced immediate opposition from the Democratic Alliance. It highlights the ongoing economic challenges, including high unemployment and inequality. The proposed budget allocates substantial resources to infrastructure improvements but risks being rejected by parliament, complicating the government’s fiscal strategy during a period of growth stagnation.

Original Source: www.france24.com