VAT increase ‘a painful blow’ to millions

Despite Finance Minister Enoch Godongwana having yielded to pressure by tabling a reduced 0.5% value-added tax (VAT) hike during his budget speech yesterday, labour federation.

Cosatu expressed “extreme disappointment”. Cosatu said this marked “a painful blow” to millions of highly indebted working-class families.

In an unprecedented move since the dawn of democracy, the budget was last month postponed due to the ANC and DA disagreeing over the initially proposed two percentage point VAT increase, causing the rand and government bonds to fall.

VAT increases by 0.5%

Godongwana said National Treasury “examined alternatives to raising the VAT – having weighed up the policy trade-offs involved, including increases to corporate and personal income taxes”.

“To raise the revenue needed, the government proposes to increase the VAT rate by half a percentage point in 2025-26 and by another half a percentage point in the following year. This will bring the VAT rate to 16% in 2026-27.

“Government also proposes no inflationary adjustments to personal income tax brackets, rebates and medical tax credits.

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“These measures will raise R28 billion in additional revenue in 2025-26 and R14.5 billion in 2026-27.

“We are aware that a lower overall burden of tax can help to increase investment and job creation – unlocking the household spending power,” he said.

Cosatu national spokesperson Matthew Parks said the labour federation could not support tax hikes affecting the working class and the poor.

Tax hikes affect working class and poor

“We call on parliament to reject this ill-considered pickpocketing of workers and amend the budget with more progressive tax revenue options”.

“VAT is regressive and hurts the poor, who already cannot afford to buy essential foods, electricity or transport.

“The decision not to adjust tax brackets for low- and middle-income workers is not acceptable when they are drowning in debt with their meagre wages not keeping pace with inflation.

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“These tax hikes will make the lives of millions even more difficult,” said Parks. Cosatu expressed appreciation for what it described as “many progressive provisions that Cosatu campaigned for in the budget”.

These included:

• An expansion of zero-rated goods to include other meat, vegetables and dairy products – which should be expanded to include sanitary pads and school supplies;
• The substantial above-inflation increases for social grants, helping 19 million recipients cope with the rising costs of living;
• Freeze of fuel price taxes for a second year, bringing a welcome relief to commuters and the economy; and
• The additional R8.8 billion for public employment programmes, as well as R22 billion from the Unemployment Insurance Fund for job creation programmes.

“We are dismayed that government failed to provide similar inflationary protection for the eight million social relief of distress grant recipients, who once again will be denied any increase.

‘An absolute abomination’

“This is an absolute abomination,” said Parks.

The Healthy Living Alliance (Heala) said it was “deeply disappointed with Godongwana’s decision to capitulate to the sugar industry’s demands”.

“The decision to hike VAT instead of increasing the health promotion levy (HPL) flies in the face of scientific evidence, which shows that the increase of the HPL is vital lifesaving intervention and an easy way to boost the fiscus.

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“The minister has shown complete contempt for ordinary people living in South Africa,” said Heala CEO Nzama Mbalati. “It is deeply disappointing that the minister missed an opportunity to increase HPL to 20% to boost the fiscus.

“Instead, he chose to increase VAT, which will hit hard in the pockets of the poorest of the poor – mostly affected by noncommunicable diseases and will put a strain on the health system,” said Mbalati.

Sugar tax not increased

Meanwhile, the SA Canegrowers (SAC) welcomed the decision by Godongwana not to increase the sugar tax.

SAC spokesperson Gerhard Mulder said sugar tax cost 16 000 jobs and R2 billion in revenue “in its first year of implementation alone”.