Africa-Press – South-Africa. South African Finance Minister Enoch Godongwana sees no alternative to a tax increase at the heart of a budget impasse that is threatening to unravel the country’s governing coalition.
The Democratic Alliance, the second-largest party in the so-called government of national unity after Godongwana’s African National Congress, opposed a 0.5 percentage point hike in the value-added tax rate to 15.5% and has filed a lawsuit to block its implementation.
The increase is scheduled to take effect on May 1.
“If I had alternatives to the 0.5%, I would be second guessing my fiscal framework,” the minister told local broadcaster eNCA on Wednesday, referring to legislation the DA voted against on April 2.
“I presented a fiscal framework, and I am confident that I would not have presented it if I had alternatives.”
The DA’s stance prompted the ANC to enlist the support of parties outside the coalition to get the bill — the first of several needed to implement the budget — passed by parliament.
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The objection of the business-friendly DA has called the survival of the GNU into question, pressuring the rand as investors assess whether its departure from the coalition would open the door for the left-leaning Economic Freedom Fighters to enter government.
So far, it’s not backing down. No headway was made during weekend talks between the ANC and the DA, which is going ahead with its court challenge on April 22.
“We will be in court on Tuesday,” said DA spokeswoman Karabo Khakhau. “
The DA has not made a decision whether to leave or remain in the DA. We await a report back from the ANC and the outcome of the case.”
ANC spokeswoman Mahlengi Bhengu-Motsiri said Godongwana would update the party’s leadership in the coming days.
Scrapping the VAT increase would leave a 13.5 billion rand ($716 million) gap in the budget. Three ANC insiders familiar with the talks said the National Treasury has found no other way to raise the money.
Another sticking point is the parties that were recruited to help pass the fiscal framework lent their support on the condition the VAT hike would be withdrawn.
The ANC insiders said the party is counting on the DA softening its stance and agreeing to vote for the next piece of budget legislation on May 6, when parliament reconvenes after Easter.
DA members familiar with the discussions said the party remains divided between those who want to leave the GNU and those who wish to stay.
The outcome of the upcoming court case will be a key consideration when making the final decision in the coming weeks, they said, asking not to be identified as they aren’t authorized to speak to the media.
Should the ANC fail to win over the DA, it hopes to convince smaller parties like ActionSA and Build One South Africa to sign off on the 2025 VAT hike with a commitment to withdraw it next year and also scrap an additional 0.5 percentage-point increase scheduled for April 2026.
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