South Africa’s political landscape is heating up as the African National Congress (ANC) considers leaning on the Economic Freedom Fighters (EFF) to pass a controversial budget that includes a proposed increase in value-added tax (VAT) rate.
The Democratic Alliance (DA), the second-largest party in the government of national unity, has vehemently opposed the move, calling it “reckless” and detrimental to the country’s economic stability.
The budget, initially scheduled for presentation last month, was delayed after several political parties, including the DA, objected to Finance Minister Enoch Godongwana’s proposal to raise the VAT rate from 15% to 17%. This marked the first time in South Africa’s history that a budget was not presented as planned. The revised budget is now set for Wednesday, March 12, 2025.
ANC’s EFF Gamble: A Desperate Move?
The ANC has signaled its willingness to negotiate with the EFF, which has historically opposed VAT increases, to secure the budget’s passage. Maropene Ramokgopa, the ANC’s second deputy secretary general, confirmed the party’s intention to approach the EFF if coalition partners, particularly the DA, refuse to support the VAT hike. The ANC’s revised proposal suggests a 0.75 percentage-point increase in VAT, down from the initially proposed 2%.
DA spokesperson on finance, Dr. Mark Burke, criticised the ANC’s approach, stating, “It’s a shame that the ANC is willing to risk South Africa’s economic stability in a desperate attempt to force a tone-deaf 0.75% VAT increase down the throats of South Africans.”
He added, “The DA refuses to be held hostage or intimidated by the ANC’s blatant threat to approach the EFF to pass this VAT-based budget. This is not responsible or collaborative governance—it is reckless and places further strain on the economy.”
Burke emphasised that the DA stands firm on zero VAT increases and has instead proposed a range of spending cuts to address the country’s fiscal challenges. He argued that government inefficiency, rather than a lack of revenue, is the root of the problem.
“National Treasury is already aware of many areas [of inefficiency]. In the 2020 Supplemental Budget, to address a national emergency, the Treasury temporarily stopped allocating resources to programmes with a history of poor performance,” Burke said. “Contrary to the ANC’s false narrative, we don’t have a revenue problem, it’s a problem of political will.”
Middle Ground or Missed Opportunity?
President Cyril Ramaphosa has backed a “middle ground” approach to the VAT increase, proposing a hike of between 0.5 and 1 percentage point. This proposal is reportedly based on a paper by University of Cape Town professor Haroon Bhorat, who argues that a VAT increase would not necessarily harm the poor due to the existence of a basket of zero-rated goods – as highlighted in this report by ResearchGate.
Bhorat also noted that VAT is the second most important source of revenue for the government, after personal income tax, and that increasing corporate or personal taxes would have a more adverse impact on the economy.
The EFF, while historically opposed to VAT hikes, has indicated it would consider joining the government of national unity if the DA were to exit. This potential realignment has raised concerns about the stability of the coalition government and the broader implications for South Africa’s economic policy.
As the budget presentation date approaches, the ANC’s willingness to collaborate with the EFF underscores the fragile nature of the current political alliance. The DA, however, remains resolute in its opposition to the VAT increase, advocating for what it describes as “credible pro-growth, pro-jobs alternatives” that focus on efficiency and smarter spending.
“The DA stands for responsible financial leadership that does not sacrifice the future of our nation for short-term political gains,” Burke concluded. “Our message to a backdoor ANC and EFF deal is to do your worst. We will do our best.”
The coming weeks will be critical as South Africa’s political leaders navigate these contentious issues, with the nation’s economic stability hanging in the balance.
