DA Opposes VAT Hike as ANC Pushes Controversial Fiscal Framework
Image source: Democratic Alliance
South Africa’s parliament has approved a critical budget bill despite strong opposition from the Democratic Alliance (DA), the second-largest party in the coalition government. This decision has heightened concerns about the coalition’s stability. During Wednesday’s session in Cape Town, the National Assembly narrowly passed the fiscal framework, which outlines the country’s economic policies, projected revenue, and spending limits, with a vote of 194 to 182.
The legislation, championed by Finance Minister Enoch Godongwana, includes a contentious proposal to increase the value-added tax (VAT) by 0.5 percentage points starting in May. It also features a non-binding recommendation for the National Treasury to explore alternative revenue-generation strategies, acknowledging potential resistance to the VAT hike. The DA has demanded a firm commitment from the government to abandon the VAT increase and urged the Treasury to identify other ways to stimulate the economy while scrutinizing government expenditures.
Although the DA has not explicitly stated its intention to exit President Cyril Ramaphosa’s coalition government, known as the government of National Unity (GNU), the possibility has unsettled investors and negatively impacted the South African rand. On the same day, the currency fell approximately 1.9% against the dollar, closing at R18.82 by 6:52 PM in Johannesburg—its lowest rate since January 16—reflecting growing concerns about the coalition’s stability.
The DA holds 87 of the 400 seats in the National Assembly, and if it shifts to opposition, the coalition’s effective strength would drop to 200 votes, assuming no other partners leave. This could compel the African National Congress (ANC) to seek support from left-leaning parties like the Economic Freedom Fighters (EFF), known for their strong stance on nationalization, to maintain a majority. Additionally, the Freedom Front Plus, another coalition ally with six seats, opposed the fiscal framework.
Following the budget’s passage, DA leader John Steenhuisen announced plans to challenge the bill in the High Court, arguing that the budgetary process was flawed due to procedural issues. He stated that the finance committee’s meeting on Tuesday did not adhere to legislative rules, as key proposals from all parties were inadequately addressed. Steenhuisen emphasized, “We look forward to this issue being resolved in court for the benefit of all South Africans who oppose this budget. The DA refuses to comply with the ANC’s tax hikes,” highlighting the party’s resolve to contest what it views as unjust financial policies.
While there is potential for compromise in later stages of the budgeting process, the ongoing tensions among major parties may hinder collaborative efforts. Godongwana remarked during Wednesday’s session, “For the GNU, I don’t think you can vote against a budget and expect to be part of its implementation the next day. We have to draw the line there,” illustrating the complexities within the coalition.
The coalition government was formed last June after national elections yielded no clear winner. It comprises parties with diverse ideologies and governance approaches, with the DA allocated six cabinet positions to ensure representation within the alliance.
Presidential spokesman Vincent Magwenya sought to reassure stakeholders following Wednesday’s vote, stating, “The president has said that the government will remain stable, but he has not made comments regarding the structure of the GNU.” However, this reassurance has done little to alleviate growing concerns.
Beyond budget disagreements, coalition members have clashed over various controversial laws proposed by the ANC. The DA has strongly opposed legislation aimed at establishing universal health insurance, deeming it unconstitutional and economically unfeasible. They have also criticized changes to education policies that threaten Afrikaans-language schools and significant amendments to a land-expropriation law introduced by Ramaphosa in December, intended to facilitate government property seizures for public benefit.
Godongwana’s budget proposal last month aims to generate R75 billion (approximately $4 billion) over three years through the VAT increase. The Treasury has warned that corporate taxes are already high by global standards, and further increases could deter foreign investment and stifle economic growth. Similarly, raising personal income taxes is unlikely to yield substantial revenue, as wealthy individuals may employ strategies to minimize their tax liabilities.
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