Finance minister Enoch Godongwana is standing his ground on a tax increase, insisting he needs the extra revenue to fund the “Covid grant” and ruling out any other form of a tax hike when he presents his delayed budget on Wednesday.
Government insiders say the government of national unity’s “clearing house”, set up to mediate disputes among parties in the GNU, has agreed to a smaller VAT hike after his proposed two percentage point increase was rejected by the DA, which said it would hurt the poor most.
Godongwana this week refused to divulge details of the budget, but insiders said less than one percentage point, possibly half, would be proposed. This would be followed by similar-sized hikes in the next two years.
Though Godongwana was upbeat about his revised budget being accepted by the cabinet, he has been instructed to reach out to opposition parties, including the EFF, in a bid to secure a majority. With just two working days to go until the big moment, both DA leader John Steenhuisen and the DA’s clearing house representative, Helen Zille, were noncommittal.
The Sunday Times understands that at a special cabinet committee on the budget chaired by Deputy President Paul Mashatile this week seemed to have agreed on half a percentage point for this year and to formulate a tax bill that would allow for similar increases over the next few years should the economy not grow fast enough to allow the government to collect more tax.
Steenhuisen said there was not yet an agreement in the GNU on the budget. And Zille, the DA federal council chair, said: “We did not have detailed discussions on the budget.”
In an interview with the Sunday Times in Cape Town on Friday, Godongwana refused to comment when asked if there was finally agreement on the budget or what proposals he will be tabling on Wednesday, saying, “I’ll answer [that question] on the 12th.”
It is understood that the GNU partners want more say on how the budget is formulated.
At the clearing house meeting, it was agreed that Godongwana and his Treasury team should be forced to consult all the GNU partners, and possibly opposition parties, during the budget development process.
There has never been a consultative process of the magnitude they are talking about on the budget. Yes, you consult, but the extent of the consultation becomes limited by virtue of the market sensitivity
— Insider
GNU partners said the embarrassment of the budget speech being abandoned 15 minutes before it was due to be delivered could have been avoided had Godongwana and the Treasury consulted the cabinet and the coalition ahead of time.
The argument for a change in the budgeting process is said to have been made by Good Party secretary-general Brett Herron and deputy president Paul Mashatile, chair of the clearing house, is said to have agreed.
“The issue in the clearing house was not the contents of the budget but the budget process. Herron made the case that there was a need to relook it now that we are in the GNU,” said an insider, adding that consultation also needed to be improved.
Responding to criticism that he failed to consult widely enough on the budget, even within his own party, Godongwana said the only people he needed to consult were the president and the ANC’s top seven officials — who all gave him the green light on the proviso that the zero-rated basket would be expanded to protect the poor.
The tradition with the budget is to consult as few people as possible since the information is market-sensitive, he said.
“There has never been a consultative process of the magnitude they are talking about on the budget. Yes, you consult, but the extent of the consultation becomes limited by virtue of the market sensitivity.”
Godongwana said there would not be a need for a VAT increase if the social relief of distress (SRD) grant fell away. “If you allowed me to cut the SRD, I wouldn’t increase anything. I’m faced with increased expenditures which are not in the budget.
“In the past I’ve made the point that the understanding was that the SRD was temporary. If it continues, it’s not affordable; we’ll have to find a revenue source. If you decide to keep it, well and good for social cohesion and protecting the vulnerable. That’s a noble cause but we must find a revenue source for it.”
A two percentage point VAT increase would have raised an additional R60bn. The Treasury has budgeted R35bn in 2025/26 as an addition to the baseline to fund the grant introduced at the height of the Covid lockdowns, but has not made provision for it for the two outer financial years. The number of beneficiaries is expected to rise after the high court ruled that the means test applied by the government for eligibility was unconstitutional. The Treasury is appealing the ruling.
Godongwana said there was little room to raise other taxes. He warned that ending medical tax credits, as suggested by some experts, would hurt lower-income families that rely on private health care.
He said it would be unwise to raise the corporate tax rate from 27% to 28%, as suggested in other quarters, as it would hurt the economy. South Africa already had a high corporate tax rate compared with other Organisation of Economic Co-operation and Development countries of 38 nations.
“We are in a difficult environment. Electricity prices have shot up, smelters are closing. What you are taxing is profitability. All you are doing by taxing them more is to fast-track these closures. You are going to lose jobs.” Mining company profits were being eroded by the logistics crisis, and taxing them more would not make sense, he said. “Logistics has crippled mining; they are not making money. Then we say we’ll tax you more ... what’s the logic?”
Tensions and disagreements exist with everybody; Treasury with Sars, Treasury with me, Sars with me, me and the Reserve Bank ... those are part of family discussions and disagreements
— Enoch Godongwana, finance minister
Reflecting on his inability to pass the budget, Godongwana said he was taken aback by the highly charged reaction to the VAT proposal. While he was aware the DA would oppose the move since the party had made it clear when he met its top officials on February 7, it was the reaction of ANC cabinet colleagues that surprised him.
“I didn’t have any idea they would respond in that manner. That was a shock,” he said.
However, he insisted on tabling the budget on the proviso that parliament could later invoke the Money Bills Amendment Procedure and Related Matters Amendment Act, which gives it the power to amend the budget if MPs disagreed with it.
While he remained steadfast on the fiscal consolidation path, including stabilising debt at 76.1% of GDP, Godongwana noted that the Treasury could not make further cuts without eroding basic services. “We have reached the end of budget cuts. [Any more] would erode the basic services of the very poor people you are trying to protect.”
On his relationship with South African Revenue Service (Sars) commissioner Edward Kieswetter, he said while there were natural tensions between them, and between agencies that report to the Treasury, rumours that he had a problem with Kieswetter were untrue.
“Tensions and disagreements exist with everybody; Treasury with Sars, Treasury with me, Sars with me, me and the Reserve Bank ... those are part of family discussions and disagreements.” He said most of the differences related to revenue modelling and forecasting but teams from the Treasury, the Reserve Bank and Sars met regularly.
On February 18 Business Day quoted Kieswetter as having warned at a webinar two weeks earlier against tax increases, arguing they had reached an “inflection point” and would have negative economic consequences.
At the end of a press conference the next day to announce the budget would not be presented, Godongwana was recorded expressing his anger at Kieswetter’s remarks to Treasury director-general Duncan Pieterse and minister in the Presidency Khumbudzo Ntshavheni.
On Friday he said the incident was blown out of proportion and that he and Kieswetter had since met several times to clear the air.
“I had a one-on-one meeting with him last Sunday. We developed an understanding of how the issue came about,” he said.
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