One thing Godongwana doesn’t want in the Budget

Despite the Finance Minister’s claims that VAT increases are needed to fund social relief of distress (SRD) grants, experts argue that this is simply a cover for the Treasury’s opposition to including these grants in the national Budget.

Finance Minister Enoch Godongwana revealed in his 2025 Budget Speech, which he presented on 12 March, that R284.7 billion would be allocated towards social grants in 2025/26.

He confirmed that R35.2 billion will be allocated for the SRD grants, which were introduced during the Covid-19 pandemic.

In its current form, these grants will be extended for another year until the end of March 2026.

“As announced by the President in the State of the Nation Address, the SRD will be used as a basis for the introduction of a sustainable form of income support for unemployed people,” Godongwana said.

The future form and nature of the SRD grant will be informed by the outcome of the review of active labour market programmes, which is expected to be completed by September 2025.

The SRD grants were initially introduced during the Covid-19 lockdown and were intended as a short-term solution to bring relief to struggling households.

However, it has been extended multiple times, and approximately 9 million South Africans currently rely on this grant.

In the lead-up to the 2025 Budget speech, as reported by the Sunday Times, Godongwana confirmed that a VAT hike would not be made if the SRD grant was scaled down.

“If you allowed me to cut the SRD, I wouldn’t increase anything. I’m faced with increased expenditures which are not in the budget,” he said.

Initially, the Treasury was considering a 2% VAT hike, but Godongwana revealed in the 2025 Budget that it would increase by 0.5 percentage points in 2025/26, and again in 2026/27.

This would bring the current VAT rate to 16%.

Despite the minister’s claims that this hike was essential to finance SRD grants, Institute for Economic Justice (IEJ) senior social security researcher Dr Kelle Howson told Newzroom Afrika that this is false.

“It’s an open secret that Treasury has long been opposed to the SRD grant and has tried to terminate it at various points, but the SRD grant is government policy,” Howson said.

“The president has stated repeatedly that the government plans to improve, extend, and expand the SRD Grant.”

She explained that the minister coming out so close to the rescheduled budget and blaming the SRD grant for the VAT increase doesn’t make sense.

“Saying the reason why we need a VAT increase is the SRD grant is singling out the grant simply because the Finance Minister and the National treasury don’t like the SRD grant,” she said.

“It makes no sense to single it out as a specific area of expenditure that requires additional revenue.”

She pointed out that this grant takes up just over 1% of the national Budget.

“The fact is that it’s not a new or unanticipated area of expenditure. It has been in the budget as a provisional item for the 2025/26 year, so it’s already funded.”

“The broader debate around the need to raise additional revenue is an important debate and the IEJ has put out a number of proposals for ways that additional revenue could be raised without squeezing the poorest households, which is what VAT would do.”

“But just to be very clear, we believe that this false dichotomy – the ‘SRD Grant or a VAT increase’ – is a calculated political move in order to drive through a desired policy outcome, the policy outcome that the Minister of Finance wants.”