In a dramatic policy reversal aimed at preserving the fragile coalition government, South Africa’s Finance Minister Enoch Godongwana on Thursday announced the withdrawal of a proposed increase in the country’s value-added tax (VAT), after intense opposition from the Democratic Alliance (DA), the second-largest party in the coalition.
The controversial proposal, which sought to increase VAT by one percentage point over two years, was designed to address a staggering R75 billion shortfall in the national budget. However, growing backlash from within the coalition and concerns about the financial strain on low-income households forced the government to reconsider.
“This decision was not taken lightly,” said Godongwana during a press briefing in Pretoria. “We are fully aware of the economic pressures that South Africans are under. Raising VAT at this time would have placed an unfair burden on the poorest citizens, which is something we cannot afford to do.”
The initial plan, backed by the ruling African National Congress (ANC), aimed to strengthen the government’s fiscal position by increasing the VAT rate from 15% to 16%, and later to 17%, by 2026. The additional revenue was expected to bolster essential services such as healthcare, education, and infrastructure development.
However, the Democratic Alliance, a key partner in the coalition formed after the closely contested national elections, threatened to withdraw its support if the measure was not scrapped.
“We made it unequivocally clear that we would not support any tax policy that punishes the most vulnerable in our society,” said DA leader John Steenhuisen. “Increasing VAT would have driven up food prices and utility costs, pushing more families into poverty. That is unacceptable.”
The DA’s firm stance put the coalition government on the brink of collapse, prompting urgent negotiations behind closed doors. According to sources familiar with the discussions, party leaders held emergency meetings throughout the week to prevent a political fallout that could further destabilize the country’s already fragile economy.
South Africa is currently grappling with one of the highest unemployment rates in the world, standing at 32%. Combined with rising inflation, the cost of living has soared, hitting lower-income households the hardest. Analysts had warned that a VAT increase would exacerbate these issues, leading to increased public discontent and potential civil unrest.
“This is a politically astute decision,” said Thabi Leoka, an independent economist. “While increasing revenue is critical, imposing a regressive tax in the current climate would have been a mistake. The minister’s reversal helps protect household consumption and maintains social stability.”
The finance ministry confirmed in a statement that VAT will remain at its current rate of 15%, adding that alternative measures will now be explored to address the fiscal gap. These may include targeted spending cuts, public sector reform, and efficiency drives within state-owned enterprises.
“We remain committed to fiscal sustainability,” the ministry stated. “But we also have a duty to ensure that economic recovery efforts are not derailed by austerity measures that deepen inequality.”
The ANC, while initially supportive of the tax increase, has also welcomed the decision, emphasizing the need for unity within the coalition and responsive governance.
“We must always put the people first,” said ANC spokesperson Mahlengi Bhengu-Motsiri. “This is a time for collaboration, not confrontation. We respect the concerns raised by our partners and are confident that together we can find viable solutions.”
Political analysts say the episode highlights the complex nature of South Africa’s current political arrangement, which demands delicate balancing of policy decisions to keep coalition partners aligned.
“This is what coalition politics looks like,” remarked political analyst Ralph Mathekga. “No single party can impose its will unilaterally. Every major decision must be negotiated, which can slow down policymaking but also creates space for more inclusive governance.”
Opposition parties outside the coalition, including the Economic Freedom Fighters (EFF), have criticized both the proposal and its withdrawal. The EFF argues that the government should focus on progressive taxation, including wealth taxes and corporate levies, rather than adjusting VAT.
“We reject both the incompetence and inconsistency of this administration,” said EFF deputy president Floyd Shivambu. “They are playing political games with the lives of our people. What we need is bold economic transformation, not recycled neoliberal policies.”
Despite the criticism, the government has received praise from civil society organizations and advocacy groups for heeding public concerns.
“This is a victory for ordinary South Africans,” said Duma Gqubule, founder of the Centre for Economic Development and Transformation. “It shows that public pressure and principled opposition within the government can influence outcomes.”
As the government works to identify new strategies to close the budget gap, economists warn that the challenge remains steep. South Africa faces mounting debt, sluggish economic growth, and structural inefficiencies that require long-term policy interventions.
“There are no easy solutions,” said economist Lumkile Mondi of the University of the Witwatersrand. “But shelving the VAT hike buys time for the government to design more equitable fiscal reforms.”
In the coming weeks, Minister Godongwana is expected to unveil a revised economic plan that balances the need for revenue generation with measures to protect the most vulnerable. Meanwhile, the coalition government appears to have survived its first major test — at least for now.
“This is not just about numbers on a spreadsheet,” Godongwana concluded. “It’s about protecting the social contract and preserving hope for a better future.”
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