Upcoming Considerations for South Africa’s 2025 Budget and VAT Increase

South Africa’s lawmakers are set to evaluate the contentious 2025 budget, which includes a proposed VAT hike. The budget was initially rejected despite a reduction in the proposed increase. The review process consists of three voting stages, with a deadline for approval by April 3. If not passed, the government can continue limited spending. The ANC seeks support from other parties amid this challenge.

In the coming weeks, South African legislators will examine the 2025 budget, which proposes a controversial increase in value-added tax (VAT). Finance Minister Enoch Godongwana introduced a revised budget on March 12, which faced rejection from most significant parliamentary parties, despite a reduced VAT hike from 2 percentage points to 1 over two years. This marks the first time in post-apartheid history that a budget may not be approved before the fiscal year concludes on March 31.

The budget’s review will unfold in three phases. Initially, lawmakers will vote on the fiscal framework and revenue proposals that outline spending limits and economic policy. Following this, they will consider the division of revenue bill that specifies fund distribution among national, provincial, and local governments. The final phase involves voting on the appropriation bill to allocate funds to designated departments and programs. Parliament has 16 working days, up to April 3, to approve the fiscal framework.

If the budget remains unapproved by April 1, the new fiscal year will allow the government to spend up to 45% of the previous year’s budget until a new budget is sanctioned, but new allocations cannot be executed without parliamentary consent. Furthermore, the National Treasury has indicated that the VAT hike could take effect on May 1, irrespective of parliamentary approval, provided the minister’s announcement allows for it.

The ANC faces significant challenges, notably as it attempts to navigate coalition politics following its loss of majority status in the parliament. ANC Secretary-General Fikile Mbalula has expressed a willingness to engage in dialogue with other political parties to facilitate budget passage. Godongwana remains receptive to legislative suggestions for budget amendments, albeit with awareness of the existing trade-offs.

The scrutiny of South Africa’s 2025 budget and the proposed VAT increase is poised to be a significant political undertaking. Lawmakers face a tight deadline to approve the fiscal framework, division of revenue, and appropriation bills. If the budget is not passed by the onset of the new fiscal year, the government will have limited spending capabilities under the previous budget. As the ANC seeks collaboration with other political entities, the looming VAT hike adds another layer of complexity to this legislative process.

Original Source: www.tradingview.com