Budget battle: Godongwana reveals DA's prior support for VAT increase

Finance Minister Enoch Godongwana on Friday labelled the DA as disingenuous regarding their opposition to tax increases in the 2025/26 Budget.

Speaking during the joint meeting of finance committees in Parliament, Godongwana addressed claims made by the country's second-largest party in the Government of National Unity (GNU), clarifying that they had previously endorsed tax increases, including a proposed VAT hike.

He said the DA’s recent assertions regarding their opposition to any tax hikes were misleading.

According to the minister, the party had proposed tax increases during the Budget's postponement, agreeing to a 1% increase in VAT over two years, following discussions within a Cabinet subcommittee.

“The DA sent a letter to the President accepting the 0.5% for things that are outside the Budget, such as the Expropriation Act,” he said.

Godongwana said after the postponement of the Budget on February 19, President Cyril Ramaphosa formed a small team that included DA leader John Steenhuisen.

“We met on several occasions and we generated five options. Option one was a DA proposal – no tax relief and an increase on fuel levy, medical credits, alcohol, and related matters. To suggest that they don’t want any other increase is inaccurate.”

He also said the small budget team, led by Deputy President Paul Mashatile, had proposed a workable solution based on a combination of options that were put on the table.

The committee came up with a combination of Option 1 and 4, which contained a 0.5% VAT increase over two years.

Godongwana also tackled the so-called spending revenue, used as a demand by the DA not to support the Budget.

Spending reviews require political heads, once aware of what has been produced, to act on them appropriately, but some of them will take time to implement.

Godongwana confirmed that one of the special reviews observed that the government spent 45% above market price on rentals.

“If we are to say okay let's take that spending review, will the spending review give us money in the next three months? The answer is NO,” he told the parliamentarians.

He said he did not doubt the capacity of Public Works and Infrastructure Minister Dean Macpherson, but he would face resistance when implementing the review’s findings on rentals.

“It may well end up in court to change the environment. It is going to take time. Putting all our eggs on what we call spending reviews and that that they will give us money in three months is not easy as people are saying.”

Godongwana also said the National Treasury was more than happy to interact with Parliament and discuss the modalities if there were any changes to be made in the Budget.

“Those changes must be confined to a debate about the Budget. We accept Parliament has authority to amend the Budget, but we would appeal the matter be focused on how to make the Budget efficient and we are approaching this thing with an open mind and we will accept your guidance in this regard,” he added.

National Treasury Director-General Duncan Pieterse told the committees that the Cabinet had considered the spending pressures – education, health, security, and infrastructure investment – that needed to be addressed.

Pieterse said the Budget had put forward additional spending that had to be funded by tax increases.

“Any increase has implication for revenue choices,” he said.

Pieterse also said borrowing to finance the government priorities would damage South Africa’s fiscal credibility as it would result in high interest rates and high cost of borrowing, which would mean less funding for service delivery priorities

“All other policy priorities such as growth enhancing and spending reviews will take time to yield results,” he said.

Joe Maswanganyi, chairperson of the finance standing committee, explained that when Parliament votes on Tuesday, it would not be voting on VAT or any other tax.

“We are voting for the fiscal framework. A fiscal framework of the Budget outlines an overall approach to managing public finance. It includes six critical areas: revenue projection, expenditure plans, deficit surplus goals, VAT management, economic assumptions, and policy priorities,” he said about one aspect of the Budget dealt with by the finance committees.

Maswanganyi added that the appropriation committees would deal with appropriation and the Division of Revenue Bill, which focuses on actual allocations to departments, entities, and spheres of government.

He said VAT was provided for in the VAT Act, and if the minister makes an announcement on the VAT rate, it could be altered on a date determined by the minister and be applied for 12 months subject to Parliament giving effect to the announcement within that period.

“If Parliament wants to change what the minister tabled or completely reject, that will be done through the law of Parliament.”

mayibongwe.maqhina@inl.co.za