While South Africans anxiously await to see if the Parliament will pass the Budget that has been labelled as “anti-poor” due to a proposed increase of 0.5% in Value Added Tax (VAT), economic experts and political analysts revealed that failure to pass it could lead to a general election.
According to economists, President Cyril Ramaphosa would face a vote of no confidence if the recently proposed Budget, which was tabled by Finance Minister Enoch Godongwana, is not approved by the Parliament.
If the president does not receive enough votes, a general election will be called. According to them, this is because every nation requires a budget for the government to run smoothly and offer its citizens services.
The Budget faces challenges due to opposition from political parties over tax measures. The Democratic Alliance (DA), along with various political parties, labour unions, and lobby groups, has expressed opposition to any hike in the VAT, claiming it is anti-growth and hurts the poorest.
Among the parties opposing it are the Economic Freedom Fighters (EFF) and the uMkhonto weSizwe Party (MKP). The parties showing resistance to the VAT hike collectively hold the largest number of seats in Parliament.
But why should you care whether the Budget is passed with the proposed VAT or not?
According to Pietermaritzburg Economic Justice and Dignity Group (PMBEJD), the 0.5% VAT rate still hurts people and the economy because it will run through the economy and make every good and service more expensive.
PMBEJD’s recent Household Affordability Index shows that the 0.5% increase in a household food basket, basic toiletries, and prepaid electricity works out to be an increase of R20.41. The total VAT on these three items will be R573.30.
“This cumulative VAT total on just three items of food, household toiletries, and electricity is extremely high relative to the monies available to households living on low incomes,” the PMBEJD said.
Another economist, Gugulethu Xaba, said with the VAT increase, companies will pay more, which will force them to sit back and see where to adjust.
“Adjusting, unfortunately, ends up affecting labour in a sense that it will mean cutting jobs, automating certain jobs, and introducing efficiencies to reduce costs,” he said.
Dawie Roodt, chief economist at the Efficient Group, said the VAT increase is not good for the economy. It will put pressure on inflation, and high inflation means interest rates will be higher for longer, which means weaker economic growth and fewer jobs.
He said any increase in taxes is bad for the economy, and an increase in state debt is also bad for the economy. “So, if they don’t increase taxes, they’ll increase debt,” he said.
Roodt said the government needs to spend more on capital expenditure like infrastructure and spend less on current expenditures like salaries. “But unfortunately, it is politically difficult to spend less on current expenditure (salaries) and spend more on capital,” he said.
He said if the Budget is rejected, it will not be a major crisis for the economy because this happens in democracies all over the world. It has just happened in the United States.
“A budget is what democracy is about, but unfortunately, politicians all of a sudden think that they are all fiscal or economic experts. And they start demanding certain things and in the end, it’s quite a mess. I think that’s where we are at the moment.
“It is a bit of a messy thing, with politicians demanding all sorts of unrelated things before they will support the ANC in this budget. And I include the DA in this thing. The DA, I don’t know what their demands are, but if they start making demands on Bela Laws, the Land Expropriation Bill, or the National Health Insurance, then that is not really directly related to the Budget. But I guess that’s the reality of politics,” Roodt said.
Roodt said that even if the Budget is not passed and the election is not held, “we” still have several months before things really go bad.
“In July, the municipalities will start to feel the pinch because they won’t be able to deliver services, or pay salaries. The running of the municipalities will grind to a halt. Around October, some of the government departments will run out of cash. That’s when the pressure will build up to the general election,” Roodt said.
Dr Ongama Mtimka, a political analyst from Nelson Mandela University, said both the DA and the ANC, as well as all the other members of the Government of National Unity (GNU) understands that the implications of not passing the Budget are going to be too ghastly to contemplate.
He said this will be both in terms of the perceived political risks they sought to manage when they formed the GNU, and the cost of going to an election if the government were to collapse.
“I think that the parties are going to come together and find each other and pass the Budget. It’s not just the VAT increase but also the non-adjustment of tax brackets in line with inflation that are going to put the ANC in a bad light, given the fact that the macroeconomic environment is already constrained.
“There is low growth, people have faced high prices and the buying power of South Africans has significantly declined. As a result of that, people will feel the pinch as the values of their incomes are no longer the same. They have declined as confirmed by the per capita incomes also. So, that doesn’t bode well for the ANC. Hence, the stance that it is taking is more fiscal prudence than a populist stance,” Mtimka said.
He added that the ANC has made the case for the increase in VAT.
“We have some economists that agree with it, that among all the alternatives, the marginal VAT increase is the most acceptable in the short term. So, you’ve got others also who are not impressed, but I think that among the general public, there’s just anxiety about increased taxes,” Mtimka said.
Professor Sipho Seepe, a political analyst from the University of Zululand, said the opposition parties will use the Budget, among other things, to project the ANC as a party that is anti-black and anti-poor, in their campaigns towards the 2026 local government elections.
“No amount of communication strategy will undermine the people’s own lived experiences,” Seepe said.
He added that the DA has been clear that it will not support the Budget and it has already gained mileage over the ANC as a result. “Most importantly, every time the ANC has lost ground, it has been unable to recover,” Seepe said.
Zwelinzima Vavi, secretary general of the South African Federation of Trade Unions (Saftu), said the VAT increase is a direct attack on the poor, who are already struggling under economic hardship.
“This government has no solution for the deepening social crisis, mass unemployment, and the collapse of the state. Instead, it continues to encourage the early retirement of 30 000 public sector workers, even spending an additional R11 billion for early retirement packages. It wants municipalities to be better at getting people to pay for services, but this is impossible given that people are unable to afford to pay,” Vavi said.
Cosatu’s parliamentary coordinator, Matthew Parks, expressed dismay at the VAT hike and the government’s failure to adjust income tax brackets that will inflict unnecessary pain upon working-class families and the economy.
“We are equally disappointed that the government continues to shy away from putting sufficient resources to support SMMEs, industrialisation, and export sectors. The Budget does not foresee growth rising beyond 2% over the next decade whilst we need at least 3% growth if we are to turn the corner on unemployment,” Parks said.
Process of passing the Budget
In South Africa, once it is tabled in Parliament, it is reviewed by various portfolio committees before being voted on by the National Assembly, typically over two months.
The Parliament plays a crucial role in exercising budgetary and fiscal oversight, scrutinising the Budget presented by the Minister of Finance, and ensuring that it aligns with the country’s needs and priorities.
The country’s national Budget process involves four stages, formulation, legislative authorisation, implementation, and evaluation, with the Appropriation Bill passed by Parliament to allocate funds to departments after scrutiny and approval.
The formulation stage involves the preparation of the Budget by the National Treasury, which includes setting macroeconomic policy objectives, identifying resource needs, and developing a detailed plan.
The legislative authorisation is when the Budget, in the form of the Appropriation Bill, is presented or tabled to Parliament for scrutiny and approval.
In the implementation stage, once the Appropriation Bill is passed, funds are allocated to government departments and agencies to implement the Budget.
The evaluation phase is when the performance of the Budget is evaluated to assess its effectiveness and identify areas for improvement.