Big development with South Africa’s 2025 Budget

A panel of South African lawmakers approved a fiscal framework that underpins the national budget, with a condition that Finance Minister Enoch Godongwana review his proposal to increase taxes.

The rand fell as the process heightened uncertainty about how a continuing dispute between the coalition government’s two main parties over the budget will play out.

Lawmakers are scheduled to vote on Wednesday on the framework, which establishes economic policy, revenue projections and limits on government spending.

Joseph Maswanganyi, the panel’s chairman, said in an interview that the Standing Committee on Finance adopted the framework along with accompanying recommendations and referred it to the National Assembly for approval.

“We must make it clear that we have not amended the fiscal framework,” but have requested the minister to reconsider the VAT issue and try to find alternative ways to raise revenue, he said.

Proposals to raise taxes have been a key bone of contention between members of the 10-party coalition that took power after last year’s elections failed to produce an outright winner.

The Democratic Alliance, the second-largest member in the alliance, has rejected the increases and called on Godongwana to look at ways to fire up the economy and review spending.

The budget released by Godongwana last month envisioned VAT being increased by 0.5 percentage point from May and by the same quantum in April 2026, raising 75 billion rand ($4.1 billion) over three years in the process.

It remains unclear whether the hike will now be scrapped and how any hole in the budget could be filled.

The National Treasury has said corporate taxes are high by international standards, and increasing them may deter investment and stifle economic growth.

Raising personal income tax rates is unlikely to deliver the targeted revenue because wealthy individuals will find ways to avoid paying.

ActionSA, a political party that isn’t part of the unity government, said it proposed that the fiscal framework be approved with the proviso that the VAT increase be revisited, which effectively meant the proposed hike was off the table.

The Treasury’s plan not to adjust personal income-tax brackets for inflation would also be shelved, it said.

Still, because the proviso wasn’t part of an amendment to the framework, “there is no guarantee that our reconditions will be followed through,” ActionSA parliamentary leader Athol Trollip said in a phone interview.

“The fiscal framework was passed without any amendments, but if the ANC do not keep their side of the bargain, then simply, we will not support the final budget vote.”

The DA had a contrary assessment of what was agreed by the finance committee, saying the Treasury has been given carte blanche to proceed with the tax increases.

“The DA has fought and negotiated for a budget that would have created growth and jobs, cut the waste in government and stopped VAT hikes,” the party said in a statement.

“The DA condemns this sell-out tactic by ActionSA, which has worked with the ANC to adopt the budget and has condemned the poorest South Africans to a higher cost of living.”

The DA also said the ANC’s actions constituted “a serious infraction” and that it had “crossed a line in the sand” by getting the budget approved with the backing of a party that wasn’t part of the ruling coalition. It didn’t specify whether it was considering quitting the government.

The rand fell as much as 1% against the dollar and traded 0.8% lower at 18.4630 by 9:08 p.m. in Johannesburg on Tuesday.