VAT Hike
By Karabo Marifi
Cape Town, South Africa – The Economic Freedom Fighters (EFF) have fiercely rejected the 2025 budget tabled by the Minister of Finance, branding it a “right-wing neoliberal” plan that betrays the poor and working class while favouring multinational corporations. In a powerful statement, EFF national spokesperson Sinawo Thambo slammed the budget as “the final nail in the coffin of the economic struggles facing the poor and working class,” criticising its proposed Value Added Tax (VAT) hike of 0.5% in 2025/2026 and another 0.5% in 2026/2027. The budget, delayed last month due to internal squabbles within the Government of National Unity (GNU), has sparked outrage, with the EFF calling on opposition parties to unite and amend it using parliamentary powers.
The 2025 budget, presented by Finance Minister Enoch Godongwana after weeks of uncertainty, has deepened political divisions in South Africa. At its core is a controversial proposal to increase VAT, which the government says is needed to fund public services and reduce the national debt. However, the EFF argues that this move will hit the poor hardest, accusing the National Treasury of bowing to corporate interests. “The Minister of Finance has unashamedly handed over government fiscal policy to the parasitic white capitalist establishment,” Thambo said, urging all Members of Parliament (MPs) to reject the budget and protect vulnerable South Africans from “austerity and malicious taxation.”
The budget comes at a time when South Africa faces slow economic growth, high unemployment, and rising living costs. The EFF’s rejection highlights their long-standing demand for policies that create jobs and grow the economy, rather than what they call a profit-driven agenda. Thambo pointed to the government’s abandonment of the National Development Plan (NDP), adopted in 2014 to reduce poverty and inequality by 2030, saying, “There will evidently be no achievement of any of the objectives set out in the adopted NDP.” He also condemned the privatisation of state-owned enterprises (SOEs) and municipal services, warning that these moves will leave many unable to afford basic necessities.
The proposed VAT hike has drawn particular ire. Initially, rumours suggested a 2% increase, but the government settled on a staggered 1% rise over two years. “A delayed and prolonged increase in VAT over a two-year period remains detrimental to the poor and the middle-class,” Thambo said, calling it an unviable way to raise revenue. The EFF has urged opposition parties to use the Money Bills Amendment Procedures and Related Matters Act of 2009 to amend the budget, while also rallying civil society, trade unions, and academics to oppose the VAT increase.
As the budget heads to Parliament, reactions from other parties are mixed. The Democratic Alliance (DA) shares some concerns but has not fully backed the EFF, while the African National Congress (ANC) defends the budget as a necessary step for fiscal stability. With South Africans already struggling, the debate over the 2025 budget is set to shape the country’s economic and political future.
The 2025 Budget: What’s in It?
The 2025 budget, tabled by Finance Minister Enoch Godongwana, outlines the government’s financial plan for the next year. Delayed by a month due to GNU infighting, it aims to balance economic recovery with fiscal discipline. The headline proposal is a VAT increase—0.5% in 2025/2026 and another 0.5% in 2026/2027—expected to raise R28 billion in its first year. Godongwana said the extra funds will support healthcare, education, and infrastructure, while also cutting the budget deficit, currently at 4.8% of GDP.
Other key points include:
• Infrastructure Spending: R1 trillion over three years, with R402 billion for transport, R219.2 billion for energy, and R156.3 billion for water projects. The government will issue its first infrastructure bond to fund this.
• Tax Measures: No inflation adjustments to personal income tax brackets, increasing the tax burden on middle- and high-income earners through “bracket creep.”
• Social Grants: Increases of R100 for old age grants, R50 for child support, and R80 for disability grants, though critics say these fall short of inflation.Godongwana called the budget a “tough but necessary” choice. “We are facing a difficult economic environment, and we need to make tough choices to ensure fiscal sustainability,” he said. The government aims to reduce the debt-to-GDP ratio, now at 76%, with 21.1% of tax revenue going to debt servicing.
However, the EFF and others see it differently. Thambo called the infrastructure plan “disingenuous” for relying on private sector involvement, accusing the government of prioritising profits over public needs. “The idea that public infrastructure should be subjected to profiteering is plain looting of public resources,” he said.
EFF’s Rejection: Breaking It Down
The EFF’s rejection of the 2025 budget is rooted in their belief that it fails South Africa’s most vulnerable. “South Africa needs economic policy that will guarantee full employment and grow the productive sector of the economy,” Thambo said, slamming the budget for lacking a clear vision. He pointed to the NDP’s collapse, noting, “There is no mention of the National Development Plan, as that plan has been completely abandoned because it has failed.”
The party’s main grievances include:
1. VAT Hike: The EFF calls the 1% increase over two years a “dangerous and irrational proposal” that will hurt the poor and middle class. Thambo agreed with the SARS commissioner, saying, “Increasing VAT will not lead to any sustainable or significant increase in revenue but will only put poor and working households under more pressure.”
2. Corporate Bias: The EFF accuses the government of cutting corporate taxes in 2022—despite South Africa’s rate being below the global average—while now taxing consumers more. “The National Treasury has repurposed South Africa’s fiscal policy to revive high levels of profitability for multinational corporations,” Thambo said.
3. Privatisation: The EFF rejects plans to privatise SOEs and municipal services, calling it “deliberate sabotage” by the National Treasury. “Soon, the majority of our people will not be able to afford municipal services,” Thambo warned.Instead, the EFF wants SARS to tackle illicit financial flows and tax evasion. “The EFF has called on the government for the past 10 years to capacitate SARS to deal decisively with illicit financial flows, particularly profit shifting and base erosion,” Thambo said, arguing this could fund essential services without raising VAT.
Opposition Parties Weigh In
The EFF’s call for unity has stirred debate among opposition parties. The DA, the second-largest party, agrees the VAT hike is problematic but hesitates to reject the budget entirely. “While we agree that the VAT hike is problematic, we believe there are other areas of the budget that warrant support,” said DA leader John Steenhuisen. The DA has proposed cutting government waste and boosting tax collection as alternatives.
The uMkhonto weSizwe Party (MK) fully backs the EFF’s stance. “We will not support any form of increase in VAT,” said MK spokesperson Nhlamulo Ndhlela, calling the budget a “betrayal of the people.” However, the ANC, leading the GNU, defends it. “We are navigating a complex economic landscape, and this budget strikes a balance,” said ANC spokesperson Mahlengi Bhengu.
Smaller parties like the Good Party, also in the GNU, oppose the VAT hike. “A VAT hike is a lazy, crude, and uncaring way to increase revenue,” said secretary-general Brett Herron, pushing for better tax compliance instead. With the GNU divided, the budget’s passage is uncertain, and the EFF’s call for amendments could gain traction.
How Will This Affect South Africans?
The VAT hike has sparked alarm about its impact on ordinary people. Economists say even a 0.5% increase could hit low-income households hard, as they spend more of their income on VAT-able goods like food and clothing. “For families already struggling to afford basic necessities, this increase will make life even harder,” said economist Azar Jammine.
Stats SA data shows 55% of South Africans live below the poverty line, with food prices up 7% in 2024. A VAT hike could add R200-R300 annually to the average poor household’s costs, Jammine estimates. “The majority of households are already under enormous financial pressure and will be disproportionately affected by this proposed VAT increase,” Thambo said.
Middle-class families face a double blow with “bracket creep,” reducing take-home pay as inflation pushes them into higher tax brackets. “It’s a stealth tax that squeezes consumers from both ends,” said tax expert Piet Nel. Small businesses also worry about lower sales if customers cut spending.
Economic Fallout: Growth or Gloom?
South Africa’s economy is at a crossroads, with unemployment at 35% and growth stuck below 1%. The 2025 budget aims to stabilise finances, but critics warn it could backfire. “Austerity measures like VAT hikes can stifle economic growth by reducing consumer spending,” said economist Dawie Roodt. He predicts a 0.2% GDP drop if the hike goes through.
The National Treasury disagrees. “Without additional revenue, we risk a debt spiral that could cripple the economy,” said spokesperson Edgar Sishi. The R28 billion from the VAT hike will help, but debt servicing costs—R356 billion in 2025—still loom large.
The EFF argues for a different path: public investment over cuts. “South Africa needs policies that create jobs and grow the economy, not austerity measures that deepen inequality,” Thambo said. He pointed to countries like Brazil, where targeted spending lifted millions out of poverty, as a model.
Privatisation: Who Wins?
Privatisation is a hot-button issue in the budget. The government wants to sell off parts of struggling SOEs like Eskom and SAA to ease fiscal pressure. “Many SOEs are inefficient and drain public resources,” said analyst Melanie Verwoerd, supporting the move for better service delivery.
The EFF sees it as a sell-out. “The National Treasury is continuing with the deliberate sabotage and collapse of SOEs,” Thambo said, arguing they’re vital for development. He also slammed the commercialisation of municipal services, begun in the 1980s, saying, “Many municipalities will begin to operate as private commercial entities instead of people’s municipalities.”
Eskom’s case is telling. The budget suggests private firms could generate power cheaper, but Thambo disagrees: “The role of energy in a national economy is development.” With 12 million South Africans lacking reliable electricity, the stakes are high.
Social Grants and Jobless Youth
The budget’s grant increases—R100 for old age, R50 for child support, R80 for disability—won’t keep up with 5.2% inflation, critics say. “These increases will not be enough to cushion many vulnerable and poor households,” Thambo said. With one worker often supporting four people in black households, the gap is stark.
Unemployment, especially among youth (60% jobless), is a crisis. The EFF wants a permanent grant for unemployed graduates, rejecting the temporary R350 SRD grant. “The continuous extension of the SRD grant is malicious and must be rejected,” Thambo said. The Treasury cites costs, but advocates argue it’s a moral duty.
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