South Africa’s Revised Budget Faces Rejection Amid Economic Concerns

South Africa’s Finance Minister unveiled a revised budget reducing previously proposed VAT increases. The new VAT plan calls for a gradual increase to 16% by 2026/27, facing strong opposition from the Democratic Alliance, which has rejected the budget. Concerns continue regarding the nation’s economic challenges, including high unemployment and poverty levels, and the budget’s implications for the unity government.

South Africa’s Finance Minister, Enoch Godongwana, presented a revised budget on Wednesday, which included a reduction in the initially proposed value-added tax (VAT) increase. The budget outlines a staggered rise in VAT, increasing by one percentage point to 16% by the 2026/27 financial year. This increment will be executed in two phases: a 0.5% increase in the 2025/26 fiscal year, followed by another 0.5% in the subsequent year.

The new VAT proposal, despite being more modest, faced significant backlash from some parliamentarians, who expressed their disapproval through boos during the announcement. The Democratic Alliance (DA), a significant political party within the coalition government, promptly rejected the budget. DA leader John Steenhuisen stated, “We will continue to fight for economic growth and jobs.”

In defense of the budget, Minister Godongwana emphasized that raising corporate or personal income tax rates would adversely affect investment and employment rates. He described VAT as a necessary measure to fund essential public services, recognizing its broad impact across the population.

South Africa’s economy, the most developed in Africa, currently endures a sluggish growth rate of only 0.6% for 2024, with unemployment exceeding 32% and high levels of inequality. World Bank estimates suggest that approximately two-thirds of South Africa’s population lives in poverty.

The budget allocates over one trillion rands ($54.4 billion) over the next three years aimed at enhancing infrastructure, improving energy supply, and bolstering public services. Furthermore, it allocates additional funding to tax authorities to recover uncollected revenue, which is crucial for financial stability.

However, the Democratic Alliance has expressed concerns that the budget will exacerbate the plight of South Africans and jeopardize the unity government. The party has threatened to withdraw support, raising uncertainties about the budget’s ability to garner the necessary parliamentary majority for approval.

In summary, South Africa’s revised budget presents a phased VAT increase aimed at critical public service funding, despite facing significant political opposition. The economic context reveals pressing issues, including high unemployment and poverty levels. The allocation of significant funds towards infrastructure and tax recovery underscores the government’s intentions to address these challenges, though the stability of the coalition government remains uncertain due to dissent from the Democratic Alliance.

Original Source: newscentral.africa