South African lawmakers will critically assess the 2025 budget, including a controversial VAT hike proposed by Finance Minister Enoch Godongwana. The reduction in the proposed VAT increment and the lack of legislative consensus may stall budget approval before the fiscal year ends. Should the budget not be approved by April 1, government expenditure will follow the previous year’s limits until a new budget is in place. The VAT hike could be imposed on May 1 without prior budget approval.
In the upcoming weeks, South African lawmakers are poised to examine the 2025 budget, which includes a proposal to increase value-added tax (VAT). Finance Minister Enoch Godongwana presented a revised budget on March 12; however, it has faced opposition from major parliamentary parties, particularly due to the proposed VAT increase being reduced from 2 percentage points to 1 over two years. This has created uncertainty regarding the budget’s passage before the fiscal year concludes on March 31, marking a potential first in the post-apartheid era.
The budget review process will occur in three distinct stages: first, lawmakers will vote on the fiscal framework and revenue proposals, establishing economic policies and government spending limits. This will be followed by the consideration of the division of revenue bill, detailing the allocation of funds among national, provincial, and local governments. The final vote will include the appropriation bill, which specifies funding for particular departments and programs. Parliamentary procedures stipulate lawmakers must approve the fiscal framework and related revenue elements by April 3, although some flexibility is permitted.
Should the budget not reach approval by April 1, the government can spend up to 45% of the previous year’s budget until a new one is sanctioned. Nonetheless, new budgetary allocations cannot be executed without parliamentary consent. Interestingly, the National Treasury revealed that it could implement the VAT hike on May 1, irrespective of budget approval. According to the Treasury, adjustments made post-implementation would require legislative changes within 12 months, and repayment of the existing tax would not be necessary.
The budget represents a significant challenge for the African National Congress (ANC), which lost its majority in parliament last year. ANC Secretary-General Fikile Mbalula has expressed the party’s willingness to engage all political factions to facilitate budget approval. Minister Godongwana remains open to suggestions for modifications, emphasizing the complexities involved in making budgetary adjustments.
The South African government is at a critical juncture regarding its 2025 budget and the proposed VAT hike, with an uncertain path ahead as various parties negotiate. Should the budget fail to pass by the new fiscal year, spending will continue at a limited capacity. Meanwhile, the National Treasury may implement the VAT increase before formal budget approval, presenting an additional layer of complexity in fiscal management. The anticipation of discussions among political parties may shape the final outcomes.
Original Source: www.tradingview.com
