Budget 2025: Scrap SRD grant in exchange for zero VAT hike? – Godongwana shares his thoughts

Finance Minister Enoch Godongwana has stated that no tax increase will be necessary if the Covid-19 Social Relief of Distress (SRD) grant is canned ahead of next week’s budget speech.

Godongwana is set to present the 2025/2026 national budget on Wednesday, after a delay last month due to disagreements within Cabinet over a proposed 2% increase in value-added tax (VAT) to fill a shortfall of R60 billion.

The proposed VAT hike faced opposition from political parties within the government of national unity (GNU), who urged Godongwana and the National Treasury to explore alternatives rather than raising VAT to 17%.

Discussions around a possible 0.50% to 1% increase in VAT, along with other proposals, continue, with no final decision yet.

There is speculation that the ANC may turn to the Economic Freedom Fighters (EFF) for budget support if no agreement is reached within the GNU.

Budget 2025: Godongwana defends VAT hike proposal

In a recent interview with the Sunday Times, Godongwana confirmed that no VAT hike would be needed if the SRD grant was scrapped.

“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,” he said.

Godongwana elaborated that he had previously made concessions on the SRD grant, which was introduced as a temporary measure during Covid-19, and emphasised that funding would need to be sourced if the grant continued.

“If it continues, it’s not affordable; we’ll have to find a revenue source,” he stated.

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He also expressed surprise that some ANC Cabinet ministers rejected the proposed 2% VAT hike, despite reportedly receiving approval from President Cyril Ramaphosa and the party’s top officials to expand the zero-rated basket to protect the poor.

“I didn’t have any idea they would respond in that manner. That was a shock,” Godongwana said.

The minister further ruled out any additional budget cuts, warning that such actions would harm service delivery.

Additionally, Godongwana dismissed the possibility of raising corporate taxes.

Alternatives to increasing VAT

According to the 19 February version of the budget speech, government carefully examined alternatives to raising the VAT rate and the policy trade-offs involved, including increases to corporate and personal income taxes.

However, these alternatives would generate significantly less revenue while posing risks to economic growth and job creation.

READ MORE: 2025 Budget: ‘VAT is not a poor people’s tax’ – Mantashe

Godongwana would have argued that raising corporate taxes, for example, could discourage investment and job creation, ultimately reducing revenue over time.

Moreover, increasing debt levels would drive up interest rates, further straining the economy.

In contrast, the proposed VAT hike is seen as the most efficient solution.

DA budget proposals to Godongwana

The Democratic Alliance (DA), meanwhile, has argued that instead of tax increases, strict austerity measures should be implemented.

These include a reduction in travel and catering expenses across departments, a 12-month hiring freeze for all non-essential government positions, cuts to government advertising and a national audit of ‘ghost employees’ to eliminate fraudulent salaries.

The DA also suggested using adjustment budgets throughout the year to reallocate funds as inefficiencies were identified.

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