Minister of Finance Enoch Godongwana was scheduled to deliver his fourth Budget speech of his term on 19 February 2024 and the first under the Government of National Unity (GNU).

However, at the eleventh hour it became apparent that the proposed revenue generating policy of increasing the VAT rate by 2% was not endorsed by the majority. An emergency cabinet meeting was convened by the President a few hours before the scheduled Budget speech culminating in a postponement of the Budget to 12 March.

At the time, it was widely reported that the Commissioner of the SARS did not view the proposed increase in VAT as a plausible solution to increase tax collection as he had mentioned that we were already on the precipice of a point where an increase in rates may in fact result in negative returns.  The Minister was insistent that the budget must strike a balance between the public interest, economic growth and fiscal sustainability.

As they say, a good negotiation is one where both parties walk away equally unhappy and perhaps that is the case with the Budget 2.0. Instead of increasing the VAT rate by 2%, it will be increased by a half percentage point on 1 May 2025 to 15.5%, and the second half percentage point increase to 16% will take effect on 1 April 2026. The increase in the VAT rate was sold on the basis that the basket of VAT zero-rated foodstuffs will be expanded and that there will be no increase to the general fuel levy, and that most of the VAT collection is in any event paid by higher-income households.

In addition to the VAT increase, the delay in the Budget may have encouraged a decision to avoid an inflationary adjustment to the tax tables which typically gives relief for bracket creep in relation to individual taxes, rebates and medical tax credits. In not adjusting the tax tables there is no need to adjust the payroll, which would have required immediate attention given that we are already 12 days into the new tax year. This is the second consecutive year where no inflationary adjustment has been made. As a consequence, even the lower to middle earning taxpayers will be paying tax purely on inflationary increases.  This measure is expected to raise revenue of R19.5 billion.

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