Termination of the half percentage point VAT increase through a court order paves the way for the Treasury to craft a third budget for the 2025/26 fiscal year, with the DA expected to increase pressure on the department to implement its budget priorities.
On Sunday the Western Cape High Court ruled in favour of the DA and EFF’s application to suspend finance minister Enoch Godongwana’s VAT hike before its May 1 implementation date.
This has set the stage for a high-stakes budget battle within the coalition government, which has been left bruised by the contested and sometimes chaotic budget process.
A date has not yet been set for budget 3.0, but with a VAT increase ruled out a tough spending review is imminent. While budget cuts are on the horizon, DA federal council chair Helen Zille says allocations to front-line services must not be cut.
“There will have to be a spending review because there will be no VAT increase. Some things are going to have to be cut from the budget, but not front-line services. The DA will continue to work on a shared agenda for growth and jobs.”
The court order also sets aside the adoption by the National Assembly and the National Council of Provinces of the report of the standing and select committees of finance of the fiscal framework.
Two government of national unity (GNU) members — the DA and the FF+ — did not support the vote passed in parliament in April.
The fiscal framework, however, which relied on two 0.5 percentage point VAT hikes this year and next to fund a sizeable increase in spending, on front-line services and infrastructure particularly, was passed with the support of non-GNU parties, including ActionSA and Build One SA (Bosa).
In a notice to parties represented in parliament, National Assembly speaker Thoko Didiza said the court order would allow finance minister Enoch Godongwana to table a new budget.
“As indicated previously, I have asked the minister of finance to give an indication of the date the budget will be tabled. As soon as this information is available, I will ensure that the chief whips’ forum and the programme committee will be notified and convened to consider a revised parliamentary programme,” Didiza said.
The court judgment leaves Godongwana and the Treasury in a difficult position as it now faces a medium-term revenue shortfall of about R75bn, necessitating decreased government expenditure with likely effects on service delivery.
In a supplementary affidavit filed to the court, Godongwana made it clear that borrowing more to plug the shortfall was not a “viable option”.
The finance ministry said last week the decision not to increase VAT “means that measures to cushion lower income households against the potential negative increase of the rate increase now need to be withdrawn and other expenditure decisions revisited”.
The date for the tabling of the new budget has yet to be announced by Godongwana. In the intervening period, political parties in the GNU are once again expected to clash over budget priorities, including alternative revenue proposals.
In previous talks the DA sought accelerated growth reforms, lobbying for deputy finance minister Ashor Sarupen to join the second deputy as co-chair of Operation Vulindlela to speed up the reforms in both passenger and freight rail.
Other demands include replacing references to nil compensation with “just and equitable” in the Expropriation Act, withdrawing the National Health Insurance legal entity in the Government Gazette, removing tariffs on goods not made in SA and amending the Public Procurement Act to ensure preferential policies do not inflate the cost of goods and services for the government.
The ANC rejected these demands, partly because of issues outside the budget process.
In a press conference on Monday, EFF leader Julius Malema said the termination of the VAT hike leaves the country without a budget and should the new budget not be tabled and passed by July, “it will trigger a constitutional crisis leading to its [GNU] collapse and fresh elections”.
“The EFF stands ready to engage meaningfully and table substantive proposals to ensure the new budget focuses on economic recovery, industrialisation, mass employment and the restoration of public services.
“We will reject any attempts to impose budget cuts, austerity or regressive taxation on the people of SA,” Malema said.
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