Finance Minister Enoch Godongwana has been given 30 days to present a revised proposal for the 2025 Budget.
At a joint media briefing this morning (24 April), ANC spokesperson Mahlengi Bhengu-Motsiri announced that the Standing Committee on Finance had adopted a report rejecting the proposed VAT increase.
The briefing, convened by the ANC, was attended by representatives from the Inkatha Freedom Party, ActionSA, the Pan Africanist Congress, RISE Mzansi, Build One South Africa, the United Democratic Movement, Al Jama-ah, the Patriotic Alliance, and the Good Party.
Bhengu-Motsiri said the committee had instructed the finance minister to submit alternative funding proposals within the next month.
“This position has earned the support of a parliamentary majority, providing the democratic and legislative legitimacy,” she said.
Reading from a joint media statement, Bhengu-Motsiri, said this decision followed consultations with political parties and consideration of recommendations from Parliament’s finance committees.
“We call on the finance and appropriations committees in Parliament to move with urgency and ensure that the nation has a Budget. All parliamentarians must ensure that we pass the Bills and act in accordance with the constitutional mandate.”
The media briefing came just hours after National Treasury announced the reversal of the VAT increase. In its statement released early this morning, Treasury noted that the minister will soon introduce the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill), which proposes to keep the VAT rate at 15% from 1 May – reversing the increase announced in the March Budget.
By not increasing VAT, the government expects a revenue shortfall of about R75 billion over the medium term. To address this, the minister has withdrawn the Appropriation Bill and the Division of Revenue Bill to propose spending adjustments.
“Parliament will be requested to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability.
“Consequently, the measures planned to mitigate the impact of the VAT increase on lower-income households are being withdrawn, and other expenditure decisions are under review. Any additional revenue collected by SARS may be used to offset these adjustments.”
Revised versions of the Bills will be introduced in the coming weeks.
The initial proposal to increase VAT aimed to fund critical services affected by budgetary constraints. Although many alternative revenue-raising proposals have been made, some could negatively impact growth and employment, and others may not provide immediate relief. National Treasury will explore these options for future Budgets, the statement said.
DA awaits formal settlement offer in court bid to halt VAT hike
The Democratic Alliance and the Economic Freedom Fighters – noticeably absent from this morning’s joint political party media briefing – have taken the government to court to block the VAT increase.
Both parties filed urgent applications in the High Court in Cape Town earlier this month, with the DA lodging its case on 3 April and the EFF following on 8 April. They argue that the adoption of the Fiscal Framework by Parliament was “fundamentally flawed” and unconstitutional and called for the VAT increase to be suspended.
The DA’s application, which names Godongwana, SARS Commissioner Edward Kieswetter, National Assembly Speaker Thoko Didiza and NCOP chair Refilwe Mtsweni-Tsipane as respondents, is divided into two parts.
Part A seeks interim relief to suspend the half-a-percentage-point VAT hike and return the fiscal framework to Parliament’s finance committees for reconsideration. It also asks the court to bar SARS from implementing the higher rate.
Part B challenges the constitutionality of section 7(4) of the VAT Act, which allows the finance minister to adjust VAT rates temporarily as part of the Budget process.
The matter was heard on Tuesday, with Judge President Mabindla Boqwana indicating that judgment would be handed down by 29 April – or earlier if possible.
At a separate media briefing held this morning, DA federal council chairperson Helen Zille confirmed that the minister’s legal team has approached the DA’s lawyers with a proposal for an out-of-court settlement.
“We are awaiting a formal written settlement offer before responding,” she said. “We will respond to that settlement proposal through our own lawyers, and if we can reach an agreement, including on the issue of costs, we will seek to have that agreement made an order of the court.”
She added that once the DA receives a formal written settlement offer, it will be able to see exactly what is being asked and what is expected of the DA.
“What we will not do is withdraw Part B of our application because it is a very important point to get an order of court stating that only Parliament can raise taxes.”
Parliament’s role in fiscal framework adoption amid VAT dispute
Zille highlighted a second key issue: what Parliament will do regarding the portfolio committees’ acceptance of the fiscal framework, or their recorded acceptance of it.
“It was never put to the portfolio committee, and what we need to consider is what action will be taken regarding Parliament’s adoption of the fiscal framework, which they assumed had come from the portfolio committee.”
She added that there is no known precedent for how this situation could be overturned.
The DA believes there are two possible ways forward: first, the court could set aside Parliament’s acceptance of the fiscal framework if it was unlawful or irrational; or second, the Speaker could reconvene Parliament to review and rescind the decision.
“We don’t know which path will be followed at this stage, but because there were two respondents [Godongwana and the Department of Finance] at least in our case – SARS was the third respondent … We have to seek a settlement agreement with both before we can say that we have beaten this VAT increase,” Zille said. “While victory is a nose length away, we still have to cross the finishing line, and it ain’t over till it’s over.”
VAT increase reversal a political backpedal?
Zille framed the apparent reversal of the VAT increase as a political backpedal by the minister.
She said she had received a late-night call from the ANC’s legal team informing her of the settlement overture.
“Less than one week before that, in his answering affidavit in our court case, the Minister of Finance made it absolutely clear that the VAT increase of 0.5% would go ahead on 1 May,” she said.
Read: Godongwana says VAT court challenge is politics in legal clothing
Zille suggested the minister’s legal team had warned him of a likely defeat in court following Tuesday’s hearing.
“It looks as if it is going to be inevitable that the 0.5% VAT increase that takes effect on the 1st of May could well be set aside by the court. And in that context, it seemed better for the minister to concede before he was perceived to have been forced to by the outcome of the DA’s court challenge.”
However, the ANC-led joint media statement painted a different picture. It emphasised that Parliament, not the courts, had led the charge to reverse the VAT hike.
“Over recent weeks, South Africans have observed robust and at times difficult engagements on the fiscal framework, discussions that touched the core of our national priorities, the burden in our households and Parliament’s constitutional mandate to act in the best interest of the people,” said Bhengu-Motsiri. “These engagements have now culminated in a decision that reaffirms both the authority of Parliament and the imperative of people-centred governments.”
‘We want to cut waste’
Speaking at this morning’s joint political party media briefing, ANC secretary-general Fikile Mbalula affirmed that all political parties represented at the briefing agreed to seek alternative funding to scrap the VAT increase.
“This week, we concluded those discussions. We started yesterday, and we got a favourable response from the minister that indeed there is a possibility that this could be done,” he said.
Mbalula emphasised that the ANC’s focus throughout the talks was on defending expenditure and moving the country away from austerity.
“South Africa has been presenting to us austerity and budgets, and we seek to break away from that,” he said. “With the presentation of this Budget – without that increase – this Budget is the most perfect Budget, in our view, because it addressed the question of growth in terms of the economy … It cushioned the poor in terms of investing in social expenditure and cushioned us against austerity.”
He said the ANC pushed for inflation-linked increases for social grants, retaining the Social Relief of Distress grant, and higher allocations for frontline services such as education and health to address shortages of teachers and doctors.
“Political parties must think of alternatives that also sustain the post-austerity cycle reflected in the Budget. And this is exactly what has happened, and this is the result that we have actually welcomed here today,” Mbalula said.
The DA is now turning its attention to a broader spending review to cut wasteful expenditure.
Zille said the party has long proposed cost-saving measures to avoid tax hikes, but those proposals were ignored.
“Long before this process began, we made proposals to the national government on how we could dramatically save money in the current budget to avert and prevent an increase in any form of taxation. The minister refused to listen,” Zille said.
She made it clear that the DA wants to eliminate inefficiencies rather than cut essential services.
“We want to cut waste. That’s what we want to do. And we want to cut corrupt and fruitless expenditure … There’s going to have to be a spending review. We’re going to have to look at where we can cut waste, not frontline services, and where we can protect the poor, especially, from any increase in taxation.”
On the future of the Government of National Unity (GNU), Zille said it is something that she could not categorically answer now.
“A lot will depend on what happens today,” she said, noting that a scheduled meeting between the DA and senior ANC officials was abruptly postponed and rescheduled for tomorrow (Friday).
