SA scraps VAT hike: 2025 Budget reset for fiscal sustainability to launch May 21

National Treasury has abandoned its controversial proposal to raise value-added tax (VAT) rate, opting instead to maintain the current 15% level as part of a reset 2025 budget scheduled for release on May 21.

The decision, announced by Finance Minister Enoch Godongwana on Wednesday, reverses 0.5 percentage point increase initially proposed in March and follows weeks of consultations with stakeholders concerned about the economic strain of higher taxes on households and businesses.

The revised budget package will retain core legislative components—including the Fiscal Framework, Appropriation Bill, and Division of Revenue Bill—but aligns them with a recalibrated strategy emphasising debt stabilisation and growth-friendly fiscal policies.

According to Minister Godongwana the delay allows treasury to complete mandatory consultations under the Money Bills and Related Matters Act, including formal engagements with the Financial and Fiscal Commission, political parties within the Government of National Unity, and Cabinet approval processes.

He said during this interim period, government operations will continue under temporary funding rules permitting national departments to spend up to 45% of their 2024 budget allocations through August, followed by monthly ceilings of 10% thereafter.

Provincial and municipal governments will similarly receive transfers capped at 45% of their previous year’s allocations until Parliament finalizes the new budget.

Behind the scenes, treasury officials are refining economic assumptions using the latest growth data, recalculating revenue projections to account for the VAT freeze, and designing borrowing strategies to curb South Africa’s debt-to-GDP trajectory.

This technical work aims to balance competing priorities: sustaining critical public services like healthcare and education, maintaining infrastructure investment, and reassuring credit rating agencies about fiscal discipline.

Minister Godongwana acknowledged the complexity of these trade-offs, stating, “This process isn’t about spreadsheets—it’s about ensuring every rand strengthens both our economy and social safety nets.”

The budget reset marks a rare political compromise in South Africa often fractious fiscal debates.

By scrapping the VAT hike and extending consultations, the government seeks to build broader consensus ahead of tough decisions on expenditure cuts and revenue reforms.