Godongwana’s premise that a VAT hike is needed to fund SRD grant is strongly opposed

In the lead-up to Wednesday’s Budget presentation, the question of a VAT increase has taken centre stage. On Sunday, the Sunday Times reported that Finance Minister Godongwana had insisted that an increase in the VAT rate was required to continue funding the Social Relief of Distress (SRD) grant.

Read more: Shock VAT hike was set to bite as Treasury runs out of policy options

Ministry of Finance spokesperson Mfuneko Toyana told Daily Maverick that Godongwana could not comment on the specifics of the Budget before it is tabled.

Regarding the SRD grant of R370 a month, he said Godongwana “merely reiterated what he has said consistently, that making the grant permanent/continuing it would require a permanent revenue source”.

The grant, introduced during the Covid-19 lockdown and intended as a short-term solution, has been extended multiple times. The current extension of the SRD grant is scheduled to end on 31 March 2026.

“The SRD grant is a necessity, not a scapegoat — it is a lifeline for millions of South Africans who are struggling to put food on the table,” said Oliver Meth, the spokesperson for the Black Sash.

“Trying to pit the needs of the most vulnerable against VAT hikes is not only manipulative but also a distraction from the real issue: mismanagement and misplaced priorities in our country’s Budget.

“Let’s be clear — there is money in the Budget. The SRD grant is not the reason for revenue shortfalls, nor should it be used as a convenient excuse for increasing the cost of living for everyone, especially the poor.”

Meth called on the government to address corruption, wasteful expenditure and mismanagement instead of making the public choose between social support and higher taxes.

“If the finance minister is serious about fiscal responsibility, he should start by plugging the holes where public funds are disappearing — not by squeezing more out of those who already have the least,” he said.

“It is important to correct the distortion that some level of a VAT increase, while ‘regrettable’, is necessary to fund the SRD grant,” said Neil Coleman, senior policy specialist at the Institute for Economic Justice.

Coleman said “no additional revenue is needed” to maintain the grant at its current level, arguing that the premise that the SRD grant is ‘new expenditure’ requiring additional funding was based on “Treasury misinformation”.

He pointed to Treasury Director-General Duncan Pieterse’s confirmation to Parliament last year that a R35-billion allocation for the grant had been included in the 2024 Medium-Term Expenditure Framework Budget baseline for 2025/6.

Godongwana had planned to raise the VAT rate from 15% to 17% in the 2025/2026 Budget to generate an additional R58-billion in revenue. This proposal met with strong opposition from within the Government of National Unity (GNU), delaying the Budget presentation.

The Democratic Alliance (DA) rejected any increase in VAT.

Read more: How the ANC’s GNU partners revolted after hearing of VAT increase at 11th hour

In a National Assembly mini-plenary session on 7 March, the DA’s finance spokesperson, Mark Burke, questioned the ANC’s commitment to economic freedom, asking, “If we know that millions of SA cannot afford basic nutrition … then why is the ANC minister of finance still contemplating making that burger and that coffee and baby formula and electricity more expensive with a VAT increase — how does that achieve economic freedom?”

Burke challenged the ANC’s claim that the tax hikes were necessary to protect social spending. He emphasised the DA’s commitment to fighting for a Budget “that has no VAT hikes, or increases in income tax or corporate tax”. He said the DA would fight for a Budget that prioritised job creation, efficient spending and a comprehensive spending review to eliminate “ghost” employees and wasteful expenditure.

‘Lazy, crude and uncaring’

The Good party secretary-general, Brett Herron, told Daily Maverick that VAT “is the wrong way to increase revenue. It is a lazy, crude and uncaring way to increase revenue. It is a regressive tax that disproportionately affects poor, low-income and middle-income families.

“Why must these South Africans carry a disproportionate burden of funding our Budget? If the minister of finance is persisting with a VAT increase, then he is not listening to his coalition partners.”

He highlighted alternative revenue-raising proposals that Good and other parties had put forward, including improving tax compliance and anti-avoidance measures at the SA Revenue Service (SARS), which, according to Herron, SARS Commissioner Edward Kieswetter has suggested could bring in an additional R400-billion a year. He also called for reducing tax credits for retirement contributions, which currently allow deductions of up to R350,000 per year.

“It is only the top earners who benefit, since very few ordinary South Africans can afford to pay R350,000 (or 27.5% of annual income) a year to [retirement annuities],” he said.

When asked if Good would vote against the Budget if it contained a VAT increase, the party said: “We can only make a decision once the Budget is presented and if it still includes a VAT hike we would need to be convinced as to why the alternatives could not be implemented.”

Brett Herron. (Photo: Leila Dougan)

Steven Motale, the national spokesperson for the PA, said: “We will never support any increase on VAT  because of the devastating impact it will have, especially on the poorest of the poor.

“We remain adamant that a more capacitated and supported SARS could bring in as much as another R450-billion a year.

“All efforts must therefore be channelled towards boosting SARS to achieve its mandate.”

Athol Trollip, the Eastern Cape chairperson of ActionSA said, “The government should look to cut the fat and leave VAT. We believe there’s a lot of fat in government that can be cut. Funding decrepit, obsolete, outdated state-owned enterprises is one of the very first places to cut the fat, including our bloated Cabinet.” DM