South Africans will not tolerate any VAT hike

9 October 2023

Current narrative suggests that the Minister of Finance, Enoch Godongwana, is considering hiking the VAT rate in an attempt to plug expected revenue gaps resulting from lower than projected economic growth. Speculation emerged after high-level discussions last month between the Minister of Finance, Governor of the Reserve Bank and President Ramaphosa. The National Treasury has been scrambling to find enough money to fund government’s unrealistic spending plans.

The DA wants to make it unequivocally clear that we will reject the addition of any further pressure on already overburdened and battling South Africans and will resist any VAT increase.

August's fiscal reports released by Treasury revealed that most government departments are exhausting their budgets at a rampant pace and will run out of money before the year end in March 2024. The much-anticipated surplus, that would be a beacon of fiscal responsibility, is merely a pipe dream.

Treasury is reported to have advised President Ramaphosa that a raise in VAT by 1% to 2% is required for government to generate more revenue for itself. South Africans already shoulder an immense tax burden and will not tolerate any increase in tax, VAT included. It is concerning that, instead of reigning in irresponsible Government spending, the default response appears to be more taxation.

The root cause of government’s financial crisis is the lack of economic growth and future prospects remain dire. Ongoing electricity blackouts have significantly increased the cost of doing business and confidence in government remains low. This environment cannot generate economic growth. Treasury has, yet again, overestimated the ANC’s ability to generate economic growth and thus overstated revenue. With insufficient growth, the government's ability to sustain the nation's social safety net is compromised, and it now needs to resort to imposing measures that would require battling South Africans to dig even deeper into their pockets and drive even more food off their tables.

While headline inflation might have shown signs of stabilising to within the South African Reserve Bank’s (SARB) target range, price pressures on essential items remains worrisome, and consistently outpaces general inflation. More specifically, food prices continue to soar at an alarming rate. Government does not seem to care that the poorest 40% of South Africans bear the brunt of these escalating costs.

The risk of a rampant food price inflation demands immediate, decisive government action. Instead of increasing VAT, a DA government would alleviate the burden on lower income households by expanding the zero-VAT rated food basket to include essentials such as bone-in chicken, beef, tinned beans, wheat flour, margarine, peanut butter, baby food, tea, coffee, and soup powder.

The DA will shortly table our Alternative MTBPS, setting out our plan for a better financial future for South Africa.

Issued by Dion George, DA Shadow Minister of Finance, 9 October 2023