In an unprecedented move, South Africa’s 2025 budget speech was postponed at the last moment, signalling deep divisions within the Government of National Unity (GNU), Cape {town} Etc reports.
The postponement, which was announced just hours before Finance Minister Enoch Godongwana was set to deliver the budget, stemmed from intense disputes over a proposed two-percentage-point increase in Value-Added Tax (VAT).
The delay has sparked widespread debate, with economic analysts warning of potential consequences for both South Africa’s most vulnerable citizens and the nation’s financial standing on the global stage.
The proposed VAT hike – from 15% to 17% – was a contentious measure aimed at boosting government revenue in the face of a staggering budget deficit.
Proponents, including senior figures within the African National Congress (ANC), argued that the increase was necessary to fund crucial public services, including education, healthcare and social grants.
However, opposition parties and civil society groups pushed back, warning that the hike would disproportionately burden the country’s poorest citizens.
Unlike income tax, which is progressive, VAT is a regressive tax, meaning that it takes a larger percentage of income from low-income earners than from the wealthy.
Many South Africans rely on basic goods such as maize meal, bread, and cooking oil, which, while zero-rated, do not encompass all essential household purchases.
Items like sanitary products, school supplies, and even transport costs would see price increases, exacerbating financial hardship for struggling families.
According to a report from Business Day, economists at Stellenbosch University’s Bureau for Economic Research estimate that the VAT hike would result in an additional R180 billion in government revenue annually, but at the cost of pushing at least 500 000 more South Africans below the poverty line.
With an unemployment rate hovering around 32%, the proposed tax increase sparked fears of declining consumer spending, leading to further job losses in retail and manufacturing sectors.
News24 has reported that the postponement has exposed deep rifts within the GNU, with coalition members from the Democratic Alliance (DA) and Inkatha Freedom Party (IFP) opposing the VAT increase.
The DA’s finance spokesperson, Dion George, criticised the ANC’s approach, stating, ‘You cannot tax your way out of economic stagnation. A VAT increase will cripple households that are already battling food inflation and fuel price hikes.’
The Economic Freedom Fighters (EFF) took a more radical stance, with leader Julius Malema declaring that the postponement was evidence of a government in crisis. ‘The GNU is collapsing before our eyes. They can’t even agree on how to present a budget,’ he said during a press briefing.
To avoid a complete breakdown, the budget speech has been rescheduled for 12 March 2025, allowing additional time for negotiations. However, uncertainty looms over whether the government can reach a consensus, raising fears of further economic instability.
While the VAT increase debate has dominated headlines, another key aspect of South Africa’s fiscal future lies beneath its soil – gold. As one of the world’s largest gold producers, South Africa has long relied on the precious metal as a pillar of its economy.
However, in recent years, declining production, labour disputes and regulatory challenges have hampered the industry’s ability to generate revenue for the state.
Amid the budget turmoil, some policymakers have suggested that instead of raising VAT, South Africa should focus on revitalising its mining sector. Gold prices have surged globally, driven by economic uncertainty, with bullion recently surpassing $2 000 per ounce. If the government were to implement more investment-friendly policies and streamline mining regulations, it could potentially unlock billions in revenue without increasing taxes on consumers.
As reported by BusinessTech, mining analysts argue that a more stable regulatory environment, combined with incentives for exploration and investment, could see South Africa regain its competitive edge in the global gold market.
‘There’s an opportunity here,’ said mining economist Peter Major. ‘Gold is in high demand, and if South Africa plays its cards right, it could significantly boost state revenue without burdening taxpayers.’
However, critics warn that relying on commodity markets is risky, given their volatility. Unlike tax revenue, which is relatively predictable, gold prices fluctuate based on global economic conditions, making it a less stable long-term solution.
As the 12 March budget speech deadline approaches, the government faces mounting pressure to find a solution that balances fiscal responsibility with economic fairness. The debate over the VAT increase highlights the broader challenges facing South Africa’s economy: how to fund essential services without deepening inequality or stifling growth.
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Picture: Jeffrey Abrahams / Gallo Images
