Finance Minister Enoch Godongwana has emphasised the tough fiscal choices that South Africa must make, especially the difficult decision to raise the Value Added Tax (VAT) or reduce the Covid-19 Social Relief of Distress (SRD) grants.
As reported by the Sunday Times, Godongwana confirmed that a VAT hike would not be made if the SRD grant was scaled down.
“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,” he said.
This issue has dominated public conversation, with the impending budget receiving a lot of attention.
The most recent extension of the SRD grant, which was first implemented in 2020 as a short-term solution to assist citizens who were at financial risk during the Covid-19 pandemic, is scheduled to expire in March 2026.
The government has had to pay over R35 billion a year for this initiative.
Godongwana clarified that, although he had previously approved the SRD grant, initially introduced as a temporary Covid-19 relief measure, its continuation would necessitate identifying an alternative funding source.
“If it continues, it’s not affordable; we’ll have to find a revenue source,” he stated.
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.
The proposal was eventually shelved, and the February 2025 budget address was postponed due to strong resistance within the Government of National Unity (GNU).
Godongwana's stance emphasised the more general difficulty of striking a balance between the necessity of social assistance during difficult economic times and fiscal sustainability.
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.
The budget is set to be tabled this week, although it’s still unclear whether it will be approved or not.
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