Finance Minister Enoch Godongwana tabled his delayed Budget on Wednesday that included lower, yet still controversial, increases to the value added tax (VAT) rate, as he sought to hold the fiscal-consolidation line amid rising spending pressures.

The new proposal involves increasing the VAT rate by 0.5 percentage points in 2025/26 to 15.5% and by 0.5 percentage points in 2026/27 to 16%, rather than the immediate two percentage point hike to 17% proposed in the aborted Budget of February 19.

The increases have been coupled to other tax adjustments to help close the revenue shortfall, as well as drawdowns against the contingency reserve that are higher than those outlined in the aborted February 19 Budget.

The other tax measures included no inflationary adjustment to personal income tax (PIT) brackets, rebates and medical tax credits, as well as above-inflation increases in excise duties on alcohol and tobacco products.

These tax proposals would raise R28-billion in additional revenue in 2025/26, R44-billion next year and R46-billion in 2027/28, with the VAT increases expected to contribute R13.5-billion this year, and R19.8-billion and R31.5-billion respectively in the two outer years.

This would be partially offset by about R2-billion yearly as a result of an increase in the basket of zero-rated items, which will be implemented in an effort to mitigate the impact on poor households.

The decision not to make inflationary adjustments to PIT brackets and medical aid tax credits, meanwhile, would yield R19.5-billion in 2025/26 and would have a carry-through effect of R20.6-billion and R21.9-billion in the two outer years.

The above-inflation increases in excise duties on alcohol and tobacco products would yield more than R1-billion a year in additional revenue, but indirect taxes would be decreased over the period by more than R4-billion yearly as a result of a decision not to increase the general fuel levy.

Overall, gross tax revenue would increase from R1.98-trillion to above R2-trillion in 2025/26 as a result of the tax measures announced. In addition, the National Treasury revised the expected tax revenue shortfall for 2024/25 to R16.7-billion from the R19-billion signalled previously.

Nevertheless, the R28-billion additional revenue now forecast falls well short of R58-billion that would have been raised by Godongwana's initial proposal to hike the VAT rate to 17%.

DA REJECTS BUDGET

That proposal seriously divided the Government of National Unity (GNU) Cabinet, however, precipitating the unprecedented decision to postpone its tabling from February 19 to March 12.

The revised and lowered VAT hike remains unpopular, and it became apparent ahead of its tabling that it would still be opposed even by members of the GNU, while some non-GNU parties and civil society groups have indicated that they could pursue protest action.

The Democratic Alliance (DA), a key GNU member that had strongly opposed the initial VAT hike proposal, still opposes the Budget in its current form.

In a statement, the DA said its rejection arose because the African National Congress (ANC) had refused to accept the DA's conditions for supporting the Budget, which would be premised on any tax increases being temporary and that they be coupled to major reforms.

"The ANC VAT Budget doesn't have a majority, and the DA won't give it one," the DA said in a statement.

However, DA leader John Steenhuisen had left the door open for reaching an agreement before Parliament voted on the Budget.

In an earlier media briefing Godongwana indicated that the DA might agree to the two 0.5 percentage-points hikes, with conditions, but noted that not all of these related directly to the Budget process.

There is also growing pressure on government to introduce savings, but the National Treasury said it was difficult for the size and permanency of possible savings to be immediately quantified and implemented.

SPENDING REVIEW

However, 240 spending reviews had been undertaken by t...