A leading civil society organisation on Wednesday joined the ranks of those opposed to an increase in VAT, saying the move would hurt vulnerable households, reduce spending power and throttle the already weak economy.
“The VAT increase will actually hurt vulnerable households and the general economy. It will leave less money available in the pockets of South Africans. Consumption will decline, and with that revenue collection too,” Mervyn Abrahams, programme co-ordinator of the Pietermaritzburg Economic Justice & Dignity Group, told Business Day.
Last month’s contentious budget unveiled by finance minister Enoch Godongwana was debated in parliament on Wednesday, though it was uncertain whether it would receive enough votes to pass after the DA and other opposition parties rejected the VAT increase.
Godongwana initially intended to increase the tax by two percentage points to 17% but was forced to backtrack after members of the government of national unity refuse to sign off on the budget. The Treasury opted for a half a percentage point hike in each of the next two years, with the proposed increases set to generate R13.5bn in revenue in 2025/26, R30bn in 2026/27 and R32bn in 2027/28.
However, opposition parties including the DA have rejected the proposal, saying it is “a punch to the gut of already struggling South Africans”.
Abrahams said the civil society initiative remained hopeful the VAT increase would not be passed.
“But that would leave a major gap on the revenue side. The minister should not cut back on expenditure as that would mean less investment in the economy,” he said, adding that political parties must “stop posturing and put SA first. And that applies to all political parties.”
Labour federation Cosatu has called on parliament to amend the 2025/26 budget to scrap the contentious VAT hike and add more progressive revenue options to stimulate economic growth and create much-needed jobs.
In its recent submission on the budget to parliament, the labour federation called for the R370 social relief of distress (SRD) grant to be adjusted for inflation and for an increase in funding for public employment programmes and industrial and export financing.
Public infrastructure spending over the next three years will top R1-trillion to grow the economy and create jobs. Spending is set to focus on three sectors: transport infrastructure (R402bn), energy infrastructure (R219.2bn) and water infrastructure (R156.3bn).
The budget vote in the National Assembly proceeded on Wednesday after the standing committee on finance adopted the fiscal framework, with “recommendations”, through a vote supported by the ANC, ActionSA and the IFP.
The ANC appeared to have a fallback position should the deal with the DA remain elusive through the support of “swing votes” in parliament, which include ActionSA and Mmusi Maimane’s Build One SA. ANC secretary-general Fikile Mbalula indicated on Tuesday that talks were also progressing with the EFF.
Dogged pursuit
Abrahams said the dogged pursuit of VAT to generate revenue was unfortunate, given that the Godongwana had far more effective revenue-raising options available.
“For example, removing the retirement fund tax breaks for high-paid employees earning above R750,000 per annum; or instituting a tax holiday on the Government Employees Pension Fund,” he said.
“These options would have raised billions of rand, far beyond the revenue gained from increasing VAT. Raising VAT is not necessary when these options are still at hand. Increasing VAT will run through the economy and make every good and service more expensive. It will hurt people and it will hurt businesses, and it will hurt the economy,” he said.
In a statement, the NGO said that a 50-basis-point increase in VAT “will bring the total 15.5% VAT on a basic basket of household groceries to R334.81, with the total basket increasing to R5,324,02 (from R5,313,22)”.
The increase would also lead to higher electricity prices, raising a household’s basic 350kWh consumption of electricity to “R158.42, with the total monthly cost of prepaid electricity for households increasing to R1,180.53 (from R1,175.42)”.
“VAT hurts consumer spending, it hurts being able to invest and save, it reduces household options to engage in income generating activities ... A country that seeks to develop its economy puts investment on human capital at the centre.
“Therefore, we believe that the government needs to ensure a greater level of commitment to economic growth by ensuring that food and all our basic necessities are affordable for all of us”.
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