The Government of National Unity (GNU) is in very shaky territory that could go one of three ways, with a proposed VAT hike emerging as a central fault line — one that could fracture South Africa’s fragile coalition government or cement a regressive tax that will deepen hardship for the country’s most vulnerable. Either way, it appears that ordinary South Africans will pay the price, with little regard for how that cost will be distributed.
Read more: VAT court challenge stays; Treasury may drop increase: Three future GNU scenarios for SA
Facing a projected R60-billion revenue shortfall, the National Treasury initially proposed a two percentage point (pp) increase in Value Added Tax (VAT) — a move that came as a surprise to the nation and to the ANC’s partners in the GNU. The proposal leaned on what is widely regarded as South Africa’s most efficient — but least progressive — revenue instrument.
“At its heart, the impasse between the ANC and the DA is not purely over a VAT hike, but about differing views over how to manage South Africa’s ballooning debt and encourage meaningful GDP growth,” independent political analyst Marisa Lourenço told Daily Maverick.
That position has since been softened into a phased 1pp increase: a 0.5pp hike effective from 1 May, followed by a further 0.5 percentage points from 1 April 2026. While this may signal a tactical retreat, it appears that the Treasury — and by extension, the ANC — is now considering shelving the VAT hike altogether amid growing pressure from within the GNU.
The National Treasury maintains that income and corporate taxes have little room to move without destabilising the economic base — an apparent nod to business and the need to not alienate it — and spending cuts risk paralysing already strained public services.
“The fiscal policy is credible — but it’s wrong,” said economist Dawie Roodt. “It’s too expansionary. The deficit is too big and they’re borrowing too much.”
In the Treasury’s calculus, VAT is broad-based, difficult to evade and comparatively easy to administer — but the political cost of that efficiency is proving unmanageable for the survivability of the coalition government.
And it’s not just political parties that are opposed to a VAT increase. There isn’t even consensus from other state bodies. The Parliamentary Budget Office (PBO), in a presentation last Wednesday, came out against the proposal. It said that the limited protections offered — such as zero-rating and not adjusting the fuel levy — failed to shield the broader supply chain.
The PBO warned: “An increased VAT will disproportionately burden middle- and low-income earners, who typically spend over 68% of their income on essential items such as food, water, electricity and housing.”
VAT hits everyone. And while there are zero-rated items, the reality is that most spending by low-income households isn’t exempt. “[The] Treasury is effectively taxing survival,” said economist Jee-A van der Linde of Oxford Economics Africa. “You’re talking [about] minor protections for the poor.”
While it’s possible this could spell the end of the GNU, there isn’t consensus as to what the conclusion will be. “The VAT impasse is more likely to reconfigure the existing GNU than collapse it,” says Lourenço. “At this point, both the ANC and the DA have much more to gain by remaining friendly enemies within a coalition government.”
Unenviable positions
The ANC and the DA are in similarly unenviable positions: either they risk alienating their bases by reneging on public commitments, or they compromise in an effort to salvage the GNU.
The ANC has publicly and consistently signalled conditional support for the VAT increase, citing the need to avoid further credit downgrades and to protect social spending, but it’s rumoured that this may not be the party’s final stance, given the potential cost to the stability of the coalition.
The DA, meanwhile, is caught between its longstanding commitment to fiscal restraint and rising internal dissent over what critics within its own ranks see as complicity in regressive taxation. Having come out strongly against the VAT increase, should the party now buckle, it’s unlikely that it will retain any reputational credibility.
The party has filed court papers challenging the legality of the 2025 Budget process, openly questioning its participation in a GNU that may be forcing it to bear the political costs of policies it cannot fully shape.
The PBO has repeatedly flagged the VAT proposal as particularly regressive, noting its disproportionate impact on low-income and working-class households.
While the Treasury continues to point to zero-rated goods as a mitigating factor, the real squeeze lies in the cost of semi-essentials — transport, hygiene products, school uniforms, prepaid electricity — many of which fall outside the zero-rated list. Moreover, zero-rating doesn’t protect the supply chain of zero-rated products from an increase, which will still be offloaded to consumers.
Middle-income households, already stretched by stagnant wages and compounding debt, will experience a cumulative rise in consumption costs across virtually every category of household expenditure.
Savings erosion
Luthando Mzilikazi, Nedgroup Investments’ Gauteng regional manager, warned that the impact extends beyond monthly budgets and into long-term savings erosion.
“The VAT hike adds 0.3% to headline inflation, pushing the 2025 expected average to between 3.1% in the first quarter and 5.1% by year-end. In practical terms, a retiree with R3-million in savings loses R120,000 worth of purchasing power in one year,” she said. This, she added, underscored the need to invest in funds that outpace inflation and protect capital from the cumulative drag of indirect taxes and sticky cost escalations.
In terms of monthly household VAT burdens, Mzilikazi estimated that someone spending R25,000 per month on VAT-rated goods would see their VAT bill rise to R3,875 from May (up from R3,750), and to R4,000 by April 2026.
“While zero-rated basics like staple groceries are excluded, many essentials — electricity, fuel, education, healthcare — are not. These costs are already rising faster than headline inflation, and VAT simply adds to that pressure,” she said.
Read more: How VAT will affect your investment portfolio
“Everyone in South Africa, high or low income, pays an invisible tax — whether it’s private security, education, or time lost in transport,” said Van der Linde. “VAT just piles on to that.”
The last VAT increase, from 14% to 15% in 2018, was passed under a relatively stable administration. This time, political volatility, coalition uncertainty and a legitimacy crisis in key governance structures mean that even technical policy decisions are now filtered through the lens of existential politics.
Read more: What the 2018 VAT hike tells us – and doesn’t – about Budget 2025 postponement
Inside Parliament, Budget hearings have stalled. Party caucuses are under strain. There are constitutional questions as to whether a coalition-led, hung Parliament can approve a fundamental tax policy shift without full consensus or accompanying fiscal reforms. Minor parties such as the IFP, EFF and ActionSA are leveraging the moment, threatening to block or stall the VAT increase unless concessions are made.
For them, the VAT debate offers a platform to showcase ideological distance from the ANC-DA axis — with very little downside.
Compounding effects
A working-class household spending R8,000 on transport, food, school supplies and other services could pay close to R60 extra per month starting in May, and as much as R120 next year, once indirect price increases throughout the supply chain are factored in. These compounding effects are typical of regressive taxes.
The Treasury’s technical arguments cannot be divorced from the state’s implementation record. The latest report from the Auditor-General revealed that just 34 of South Africa’s 257 municipalities received clean audits in 2022/23. The remainder are either in financial distress, under administration or failing basic compliance.
Billions of rands remain unrecovered by the Special Investigating Unit and the Hawks, lost through irregular procurement, duplicate billing and infrastructure that exists only on paper.
“I don’t even want to give SARS more money to make them more efficient,” said Roodt. “Politicians must experience the squeeze of a lack of cash — that’s the only way they’ll spend less.”
Calls to raise VAT before fixing these leakages are being interpreted less as evidence of fiscal prudence and more as a default move by a state unable — or unwilling — to police its spending. Service delivery protests continue across the country, many in municipalities that simultaneously overspend on salaries while underspending on capital budgets. For the public, trust in the government’s ability to spend responsibly has long since expired.
The GNU’s political calculus is bleak.
If the DA exits the coalition in protest against the VAT increase, the GNU collapses. That would either trigger fresh elections or leave the ANC to lead a shaky minority government with limited legislative power. If the DA stays, it risks being viewed as the face of austerity — alienating both its core and potential new voters in a still-fractured electorate.
For the ANC, failing to pass the VAT increase could jeopardise fiscal credibility with lenders and ratings agencies, while pushing ahead without consensus could collapse the very coalition meant to stabilise South Africa post-2024.
What next?
There are alternatives. Wealth taxes, levies on luxury consumption and tighter regulation of capital flows have been tabled in previous policy cycles, though none have moved beyond discussion.
Even modest gains from curbing procurement fraud or enforcing SARS compliance among high-net-worth individuals could outweigh the revenue generated by a cumulative 1pp VAT hike — but these require coordination, time and political will, traits that are in short supply among all GNU partners.
“What’s being proposed doesn’t solve the fundamental issue. It just kicks the can down the road,” said Van der Linde.
In the end, the VAT proposal is more than just a policy lever — it’s a stress test for coalition governance, institutional trust and fiscal coherence. The GNU was never designed for ideological purity. It was always an instrument of compromise. However, when compromise yields only political stalemate and fiscal pain, the difference between unity and collapse becomes purely semantic.
As the circus unfolds in Parliament, the bread is already running thin. DM