Finance Minister Enoch Godongwana has reportedly said that he won’t raise Value Added Tax (VAT) if he can cut the Covid-19 Social Relief of Distress (SRD) grants.
As reported by the Sunday Times, Godongwana said: “If you allowed me to cut the SRD, I wouldn’t increase anything. I’m faced with increased expenditures which are not in the budget.”
Godongwana is facing political pressure from Government of National Unity (GNU) parties ahead of his planned budget speech delivery at the National Assembly on Wednesday.
The most recent extension of the SRD grant, which was first implemented in 2020 as a short-term solution to assist mense who were at financial risk during the Covid-19 pandemic, is scheduled to expire in March next year.
Godongwana clarified that, although he had previously approved the SRD grant, its continuation would mean identifying an alternative funding source.
He added: “If it continues, it’s not affordable; we’ll have to find a revenue source.
A proposal to increase VAT by 2% (from 15% to 17%) was made earlier this year in an attempt to ease the financial burden. The goal was to raise R58 billion to pay for essential infrastructure and social initiatives.
But his plan was shelved, and the February 2025 budget address was postponed due to strong resistance within the GNU.
Raising VAT would increase the cost of living for South Africans who are already struggling financially, even though it could provide much-needed cash to maintain the SRD grant and pay for necessary services.
On the other hand, cutting the subsidy would impact more than eight million users, which would exacerbate poverty and stoke social unrest.
Many political parties including the Economic Freedom Fighters (EFF) and Democratic Alliance (DA) have condemned the hike, citing concerns over the cost of living.
While the budget is set to be tabled this week, it’s still unclear whether it will be approved or not.