Godongwana’s bitter ‘I told you so’

Finance Minister Enoch Godongwana has been criticised for South Africa’s budget blunders in 2025, but his years-long warnings about the country’s tight fiscal position have continuously been ignored.

More specifically, the minister has been saying for years that if the government insists on spending more money, serious trade-offs would have to be made to fund it.

These were warnings that came when politicians insisted on pursuing costly programmes like National Health Insurance and continuously pushed for the extension of the Social Distress of Relief (SRD) grant.

The warnings resurfaced when the state promised and pursued the establishment of a Basic Income Grant, and again when the government made above-inflation wage agreements with public sector workers.

After years of warnings that the money would have to come from somewhere, National Treasury finally pulled the trigger in 2025 when Godongwana proposed a two percentage point hike to VAT in February.

The blowback was immediate, but the proposal should not have come as a surprise. In October 2024 the National Treasury made its position quite clear:

Budgeting always involves difficult choices, particularly in the context of limited resources.

In the short term, the government can choose between increasing taxes, cutting spending, or maintaining the spending level without increasing the tax burden.

Higher taxes reduce the amount that households and businesses have for their current needs and their ability to build up savings.

Spending cuts, if not well targeted, can reduce the quality and quantity of critical public services.

Spending that is not matched by increased revenues leads to further increases in debt, resulting in higher interest costs that can crowd out service delivery and increase the cost of doing business.

With the government’s long list of new expenses, including above-inflation social grants, billions more going to health and education, and a big splurge on infrastructure, there was a deep hole to be filled.

At the time, Godongwana said the value-added tax (VAT) increase was the path of least harm to the economy to fill the gap.

However, the minister was instead criticised for going over the heads of political parties in the Government of National Unity (GNU) and suffered an embarrassing setback when his original budget couldn’t even be tabled.

Following consultations and behind-the-scenes negotiations, another budget was formulated and tabled in March 2025, accompanied by a lower VAT hike.

Despite a majority of political parties voting in favour of the budget, minus the Democratic Alliance (DA), EFF and MK Party, the VAT hike proved to be a political mess.

Through more wrangling and a settlement with the DA out of court, this budget, too, got pulled.

Now, months later, South Africa finally sits with a budget that doesn’t have the reviled VAT hike inside it. However, the pressure on revenue is far from gone, and tax hikes are still the only answer.

Various industries have decried the new tax measures in the May 2025 budget, including a hike to fuel levies and above-inflation increases to sin taxes on alcohol and tobacco.

By not adjusting tax brackets or medical aid tax credits for inflation, income taxpayers will be tapped for even more revenue this year.

All in all, the Treasury is raising an additional R18 billion from tax measures, with barely any relief offered.

And the Treasury’s warning is ringing loud and clear: more is coming in 2026 as it sniffs after another R20 billion through additional tax measures.

The warning comes again

Meanwhile, spending continues: social grants receive above-inflation increases, including the extension of the SRD grant for another year.

Promises have been made for a work seeker’s grant to be realised in the future, and the Department of Health continues to aggressively pursue the NHI without even a sniff of viable or sustainable funding.

Economist Dawie Roodt noted that the new budget shows a real increase in state expenditure over the next three years, which means it is an expansionary budget, not an austerity budget.

Furthermore, the state is not showing any signs of cutting its spending, having repeatedly failed to do so in the past.

After years of warnings that the state cannot keep spending without finding new revenue sources, the National Treasury has again repeated what has become its mantra: trade-offs.

In his response to the debate on the 2025 Budget, Godongwana and the National Treasury again highlighted the need for trade-offs, repeating that the budget cannot have it all.

If the government wants to keep spending, it will have to find revenue, likely through taxes.

“Any tax increase comes with negative impacts, so the main policy question is about trade-offs of different options,” it said.

South Africans have already been warned to expect more taxes in 2026. Even a VAT hike is not off the table.

If the government slices the other way, opting to cut spending, this will require its own sacrifices.

“Realising meaningful savings will demand strong political will and difficult policy trade-offs,” National Treasury said.

“Social protection proposals, such as the Basic Income Grant, remain under policy consideration taking into account the difficult trade-offs that arise due to South Africa’s low economic growth and stretched public finances which raise the salience of affordability.”

For 2026, the finance department has at least committed to consulting widely, especially within the Government of National Unity, to grapple with trade-offs in play. But do not expect any easy answers.