A revised budget presented on Wednesday by South Africa’s finance minister was immediately rejected by major political parties, even though a proposed increase in value-added tax was sharply reduced.
The revision was meant to end an impasse between Finance Minister Enoch Godongwana’s African National Congress and its biggest coalition partner, the Democratic Alliance, which rejected an initial proposal three weeks ago.
But the disagreement left no clear path to approval of the budget.
The Treasury had initially proposed a 2-percentage-point hike to fund spending on health, transport and education. It revised that on Wednesday to a half-point hike this year followed by another one next year.
VAT is currently at 15%.
“The DA made it clear to the ANC … that we would not support any increase in taxes unless those increases were temporary,” DA leader John Steenhuisen in a statement.
The official opposition, uMkhonto we Sizwe, and the Economic Freedom Fighters also rejected the new budget – ruling out the small possibility that the ANC could turn to them for votes.
The budget is the biggest test of the fractious coalition government, formed after the ANC lost its parliamentary majority for the first time since the end of apartheid in 1994.
The ANC and the DA are ideologically opposed on many issues, yet have overcome occasional disputes to govern together so far.
But political analyst Busisiwe Seabe said the budget row “sets a precedent for what we should expect: continued deadlocks, protracted negotiations, and an overall difficulty in governing”.
Godongwana said “new and persistent” spending pressures required additional funding, and that raising VAT was the best answer.
In comments broadcast on Newzroom Afrika TV, President Cyril Ramaphosa said Godongwana had made the difficult choices, and now “parliament will have to … come up with solutions.”
Tax measures proposed in the latest budget would generate an additional 28 billion rand ($1.53 billion) in the fiscal year starting on April 1, Godongwana said, less than half the 58 billion the Treasury had initially hoped for.
The revised budget documents showed that additional funds would come from contingency reserves.
The deficit is now forecast at 4.6% of gross domestic product in 2025/26, and debt is forecast to hit 76.2% of GDP, while the VAT hike is expected to raise inflation. ($1 = 18.3462 rand).
Source: Reuters
