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

With just a week remaining before Finance Minister Enoch Godongwana presents the national budget, Mineral and Petroleum Resources Minister Gwede Mantashe has seemingly defended a potential increase in value-added tax (VAT).

The budget speech, originally scheduled for last month, was postponed in an unprecedented move due to disagreements over the controversial proposal to raise South Africa’s VAT rate from 15% to 17%.

The proposed increase aims to address a R60 billion shortfall in the national budget.

The 2025/2026 spending plan is now set to be tabled on 12 March, as discussions within Cabinet continue.

2025 Budget: Mantashe’s stance on VAT hike

Responding to criticism over the proposed tax hike, Mantashe emphasised that VAT affects all citizens, not just low-income consumers.

“VAT is not a poor people’s tax. Everybody who goes to the shop pays VAT, so it’s everybody’s tax. All we are saying is that you can’t ring-fence a VAT without looking into the need for a revenue,” he told SABC News on Wednesday.

While defending the proposal, Mantashe acknowledged the financial strain it could place on vulnerable communities.

“All of us, including ANC, we accepted that 2% will be heavy for South Africans in the current economic situation. But we’re waiting for the Treasury to table a proper budget on the 12th of March,” he stated.

ALSO READ: Will Godongwana deliver the budget without any problems?

Mantashe also pointed out that tax increases are never well-received but stressed the importance of evaluating the overall budget.

“I’ve never seen anywhere in the world people excited with any tax increase, but what makes a budget not an austerity budget is what is spent on the needs of the people.”

He urged South Africans to consider the broader budget implications rather than focusing solely on VAT.

When asked whether the ANC accepted the proposed 0.75% VAT increase, Mantashe emphasised the party’s priority of maintaining a balanced budget.

“We will be okay with a balanced budget that improves services to the people.”

Debate over new budget

Deputy President Paul Mashatile’s office announced on Monday that Cabinet had reached an agreement on an alternative budget.

However, Democratic Alliance (DA) leader John Steenhuisen contradicted this, stating that no final agreement had been reached among the government of national unity (GNU) partners.

READ MORE: Budget speech: VAT increase decision not made by someone who knows hunger

“Constructive discussions on the budget are ongoing. There is no agreement yet, but we are working towards a resolution by 12 March,” Steenhuisen said in a post on X on Tuesday.

President Cyril Ramaphosa recently contended that compromises would be necessary in the negotiations, given the challenging fiscal environment and South Africa’s revenue falling short of expected levels to meet government priorities.

Alternatives to increasing VAT

According to the scrapped 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.

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 and broad-based solution.

NOW READ: Budget 2025: Was the decision to increase VAT by 2% such a bad idea?