The rejection of the national budget by GNU partners has put the extension of the Covid-19 social relief of distress grant extension and public service salary increases under threat.
Other programmes that could be in jeopardy should finance minister Enoch Godongwana not get his proposed two percentage points VAT increase include the local government elections and the deployment of troops to the DRC are some of the spending items under threat after parties in the GNU rejected a proposal to increase VAT from 15% to 17%.
The National Treasury had prioritised for more funding — such as making above-inflation increases to social grants, allocating more money for hiring unemployed doctors, and spending R19bn on improving passenger rail services and settling e-toll debt — are now all in danger.
The Treasury had also budgeted R1.4bn to cover the 2026 local government elections, but it is unclear where that money will come from when the budget is tabled on March 12.
In the Budget Review shared with economists and journalists before the tabling was postponed, the Treasury had pencilled in R252bn in additional spending over the next three years, but that is now under threat because of the rejection of the VAT hike.
Among the spending increases were R35.2bn to extend the Covid-19 social relief of distress grant until March 2026, as well as a further R23.3bn for above-inflation increases to other social grants such as the child support grant, the old-age pension and foster-care grants.
Also in jeopardy are:
- R23.4bn to honour the public sector wage agreement after the government and public unions settled on a 5.5% increase;
- R11bn to encourage civil servants aged 55 and above to retire early;
- an additional R5bn to support the deployment of soldiers to the Democratic Republic of the Congo;
- R4.6bn for public employment programmes; and
- R3.2bn to settle the government’s share of the South African National Roads Agency’s debt in relation to the Gauteng Freeway Improvement Project .
The Gauteng provincial government has agreed to pay R13.2bn to cover its share after it supported scrapping the user-pay principle on provincial highways.
A revised one percentage point VAT increase would bring an extra R30bn to the fiscus, leaving a R78bn hole this financial year alone
A slew of infrastructure projects the Treasury had planned to spend R46bn on over the next three years are also hanging in the balance. They include:
- an R11.8bn budget facility on infrastructure to support bid window 8 of the renewable independent power producer procurement programme.
- the Western Cape rapid school build programme, for which R2.2bn had been set aside;
- money for the rescheduling of Cape Town’s MyCiTi bus rapid transit system;
- an increase in pay for health workers across the country, funds for hiring unemployed doctors, and more spending on goods and services in hospitals and clinics, amounting to R28bn over the next three years;
- a programme for digitising home affairs processes and hiring extra personnel at its offices around the country and points of entry; and
- R4bn for disaster management.
Of the total baseline allocations, an extra R108bn would have been spent this financial year, another R74.5bn in 2026/2027, and R69.3bn in 2027/2028.
A VAT increase of two percentage points would have raised an extra R58bn this financial year to partially cover the costs of all the programmes now under threat. If the parties in the GNU continue rejecting the proposed VAT increase, finance minister Enoch Godongwana is likely to put forward a revised one percentage point VAT increase that would bring an extra R30bn to the fiscus, leaving a R78bn hole this financial year alone. Such as move could make it necessary to increase corporate taxes and not simply adjust personal income tax brackets for inflation.
The Treasury is committed to the fiscal consolidation path, which would result in government debt stabilising at 76.1% of GDP. If the proposed VAT increase is rejected outright, many important government programmes could be put on hold.
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