South Africa’s lawmakers will review the 2025 budget soon, after the proposed VAT hike was largely rejected. Finance Minister Enoch Godongwana’s plan faces scrutiny, with only limited time for approval before fiscal year-end. The budget evaluation involves three stages, and a failed approval would allow limited spending. The VAT increase could still be executed before the budget’s passage, under specific conditions.
In the upcoming weeks, South African lawmakers will critically evaluate the 2025 budget amidst a contentious proposal for a value-added tax (VAT) increase. Despite Finance Minister Enoch Godongwana’s proposal being revised to a 1 percentage point hike over two years, the plan has been largely rejected by major political parties. This rejection has created uncertainty regarding the budget’s passage before the end of the fiscal year on March 31, a deviation from the post-apartheid norm.
The budget evaluation process involves three stages. Initially, lawmakers will vote on the fiscal framework, including economic policies and revenue expectations that determine government spending limits. Subsequently, the division of revenue bill will be reviewed, detailing the allocation of funds across national, provincial, and local governments. Finally, the appropriation bill will allocate specific departmental funds, with each bill requiring passage before advancing to the next step.
Lawmakers are expected to approve the fiscal framework and revenue proposals by April 3, but they may adjust the budget within specific confines as per parliamentary regulations. Changes must remain within the specified revenue and expenditure limits outlined in the budget, thus retaining some legislative oversight.
Should the budget not receive approval by April 1, the government can only continue spending up to 45% of the previous year’s budget until a new budget is ratified. However, without parliamentary approval, no new fiscal allocations can take effect.
Interestingly, the National Treasury indicated that it could implement the VAT increase beginning on May 1, irrespective of the budget’s legislative status. Following such an implementation, reverting the VAT increase would require parliamentary adjustments within a year, and taxpayers would not be liable for refunds of the increased tax if abolished thereafter.
The budget represents a significant challenge for the ANC, which is navigating a fragile coalition following its first loss of majority status in the democratic era. ANC Secretary-General Fikile Mbalula has expressed the party’s willingness to engage with other political factions to facilitate the budget’s passage. Notably, Godongwana has also indicated receptiveness to proposals from lawmakers, underscoring the complexities of balancing diverse political interests in this critical fiscal matter.
In summary, South Africa’s contentious budget situation raises significant implications for the proposed VAT hike and inter-party negotiations. The timeline for budget approval is tight, allowing limited flexibility, while potential delays could trigger spending rules based on the previous year’s budget. The ANC seeks collaboration across party lines to ensure passage, amid legal provisions that could allow for VAT adjustments before formal budget approval. This development marks a pivotal moment in South Africa’s fiscal governance as it adapts to a changing political landscape.
Original Source: money.usnews.com
