Finance Minister Enoch Godongwana’s reworked Budget has been rejected by Cabinet, deepening divisions within South Africa’s Government of National Unity (GNU).
Under-pressure Godongwana is reportedly considering going for broke
The latest deadlock stems from disagreements over taxation measures aimed at addressing the country’s fiscal shortfall, including a proposed increase in value-added tax (VAT) and the introduction of a new wealth tax.
Godongwana had already postponed the annual Budget Speech, initially scheduled for February, after failing to secure an agreement on a VAT hike, which was expected to generate R191 billion in additional revenue by 2028.
In response to growing political opposition, he revised his proposal, but the Cabinet has now deemed his latest fiscal framework “unworkable,” according to reports.
Amid the political impasse, the Economic Freedom Fighters (EFF) have strongly opposed any VAT increase, arguing that it would disproportionately impact low-income South Africans.
Instead, the party has advocated for a wealth tax, which would target high-net-worth individuals.
The Democratic Alliance (DA), another key player in the coalition government, is set to present its alternative proposals before the revised Budget Speech, scheduled for 12 March 2025.
With mounting pressure to close a projected R22.3 billion revenue shortfall, Treasury faces difficult choices.
Godongwana is now weighing adjustments to existing tax policies, including possible changes to estate duties, donations tax, and capital gains tax, rather than implementing entirely new levies.
However, securing political consensus on any fiscal adjustments remains a challenge.
What a wealth tax means for South Africa’s fiscal future
The debate over a potential wealth tax has sparked concerns about its economic impact.
While proponents argue that it could generate much-needed revenue without burdening lower-income households, critics warn that it may drive wealthy individuals and businesses out of the country.
South Africa already has progressive tax structures, with individuals earning over R1.5 million annually facing a 45% tax rate.
According to Minerals Council chief economist Hugo Pienaar, only 133,000 taxpayers fall into this high-income bracket.
To raise R45 billion through a wealth tax, as some advocates propose, each of these individuals would need to contribute an additional R338,000 annually—an amount that experts say could lead to capital flight.
A study by the Free Market Foundation highlights that South Africa’s tax base is already narrow, with just three million individuals contributing 90% of all personal income tax.
Economists caution that increasing tax pressure on this group could encourage tax avoidance strategies, offshore asset transfers, or even emigration to lower-tax jurisdictions.
Despite these concerns, Treasury has not ruled out a wealth tax entirely.
Instead, it is expected to make adjustments to existing tax structures, such as increasing the capital gains tax inclusion rate, revising estate duties, or modifying donation tax thresholds.
While such measures could generate additional revenue, they may not be sufficient to close the fiscal gap without broader economic reforms.
As the 12 March Budget Speech approaches, the political standoff within the GNU threatens to further delay key fiscal decisions.
Without agreement on tax measures, Treasury may be forced to explore deeper spending cuts—an option that could face resistance from social welfare and public sector stakeholders.
With South Africa’s economy under strain, the question remains: can Godongwana balance the need for revenue with political realities, or will the GNU’s divisions lead to further fiscal uncertainty?
