National Treasury: Reducing VAT increase means govt will have less money for rainy days
On Wednesday, Finance Minister Enoch Godongwana raised VAT to 0,5 % in this financial year - and says he plans to hike it by the same margin again, next year.
Finance Minister Enoch Godongwana delivered the national budget for 2025 - weeks after it was postponed due to disagreements within the Government of National Unity (GNU). Picture credit: Phando Jikelo/Parliament
CAPE TOWN - Reducing the value-added tax (VAT) increase for 2025 means government will have less money in its reserves to mitigate against unforeseen circumstances.
National Treasury has dipped into the contingency reserve reducing it from R8 billion to R5 billion.
It’s one of the trade-offs that’s been made to reduce the originally mooted two percentage point VAT increase.
On Wednesday, Finance Minister Enoch Godongwana raised VAT to 0,5 % in this financial year - and says he plans to hike it by the same margin again, next year.
The country’s contingency reserve is meant to help in times of crisis that gives rise to unforeseen and unavoidable expenditure.
But the spending crunch means National Treasury is weakening that buffer.
National Treasury director general Duncan Pieterse says it’s not an ideal situation.
“It is certainly a fact that this contingency reserve is lower than the previous one and, therefore, the ability to deal with risks is lower than the budget we previously tabled.”
Pieterse says to counter the smaller contingency reserve, National Treasury is strengthening the country’s ability to deal with disasters.
“The technical teams in the treasury are working on other products including the parametric insurance products that can help us deal with some of the risks that may arise on the disaster side.”
An allocation of one point seven billion rand has been made over the medium-term to respond to potential disasters.