On 13 March, the finance minister Enoch Godongwana presented what has in jest been referred to as Budget 2025 2.0. This is on account of a forced postponement of the first budget speech that was to have taken place in February this year. However, this widely leaked second attempt at the national budget is no laughing matter. Especially, for the 13.2 million South Africans living in poverty and more specific to our focus area, the 2.3 million people on government’s housing waiting list. And wait for it, we are not in the clear yet. In an astonishing first for democratic governments, fellow GNU parties have been at pains to point out that this budget, like every other piece of legislation, is a proposal and it will be subjected to rigorous review and robust debate by and within cabinet and only once it stood up to this process will it be approved.
Be that as it may, the Minister reported an expected income of R2.2 trillion in 2025/2026 and R2.52 trillion by 2027/28. Expenditure will be R2.59 trillion and R2.83 trillion, respectively, during the same timeframes. This means that the country will spend more money than it has in its coffers – although the deficit is expected to decrease from 4.6% of GDP in 2025/26 to 3.5% of GDP in 2027/28. Nothing new, we’ve been working with a budget deficit, and so onwards we move.
With regards to housing and human settlements development, R286.6 billion (up from R2.678 billion) is allocated to Community Development, which includes:
- Municipal equitable share: R106.1 billion,
- Public transport: R67.7 billion,
- Human settlements, water and electrification programmes: R58 billion, and
- Other human settlements and municipal infrastructure: R54.8 billion.
Furthermore, significant funds are allocated to infrastructure with R175.7 billion going towards economic regulation and infrastructure and an additional R46.7 billion going towards infrastructure investments.
Flying in the face of significant public pushbacks and vociferous objections on the part of some GNU partners, the Minister dug in his heels and proposed an increase in the value-added tax (VAT) rate of 0.5% this year and 0.5% next year. In the context of stagnant economic growth and the consequent severely constrained public purse, and the need to finance expenditure, the Minister contended, he was left with very little choice but to increase the one tax that profoundly adversely affects poor compared to wealthier households. Never have the words of Eli Khamarov rung truer, “poverty is like punishment for a crime you didn’t commit”. Indeed, the decision to increase the tax burden on the poor is likely to serve as further punishment to an already strained and struggling people.
While we recognize the very difficult context in which this budget is formulated and, therefore, the complex nature of trade-offs the Minister had to make, we lament the decision to disproportionately punish the poor, which is the most likely outcome of the VAT hike. There is plenty of evidence that shows that efforts to cushion low-income households from the impacts of a VAT increase, i.e. adding more food items to the basket of zero-rated foods, etc., is not as effective as suggested by the Minister.
Also, because personal income tax brackets and rebates will not be adjusted for inflation in 2025/26, bracket creep becomes a real possibility. This essentially means that while a person’s income may increase (adjusted for inflation), even though the tax brackets remain the same, because the brackets (income bands) are not adjusted for inflation, some people will creep up the brackets and end up having to hand over a larger portion of their salary to the tax man. To low-income families (falling in the lowest bracket) especially, this outcome will be devastating as it leaves one with less money in your pocket after taxes while everything else (aside from zero-rated items) will now cost you that much more.
Essentially, access to affordable and decent housing is hugely dependent on one’s ability to pay – whether for rentals or home ownership. With less and less money in people’s pockets, the country’s most vulnerable and marginalised citizens become less able to afford and secure housing. Added to that, rentals and housing prices will not remain stagnant in this current housing market – while most rental accommodation increases annually (usually around 10%), interest rates (impacted bonded housing) are also likely to increase (because of the VAT hike). So, all in all, the national housing crisis may very well become more dire. Added to that, the impacts of a VAT hike will filter through to the construction sector, the transport sector, and other goods and services that serve as inputs to new affordable housing developments. The effect: a potential decrease in the number of affordable houses/units being delivered.
Despite the Minister’s commentary on the matter, many alternatives to the VAT hike have been tabled by a cross-section of political parties, civil society actors, the public at large, etc. We shall not replicate those debates here. Suffice it to say, real and viable alternatives do exist, and we strongly urge the Minster and cabinet to fiercely engage with these alternatives while prioritising creating an enabling environment for our country’s poorest and most vulnerable to access their constitutional rights, i.e. housing rights.
Secondary to that, at the May 2024 national elections, South Africans placed their hopes in the hands of political parties so that they, representing the people, can combine their collective capacities, innovations, and expertise and collaboratively govern the country towards a better future. This will require parties, and all of government, to put aside party-political interests and pursue a national agenda and the public interest – to maximally benefit the people. While we recognise that parties differ on substantive (budgetary) matters, we implore the Minister and cabinet to make a concerted effort, via consultation, a willingness to negotiate and comprise, and partnership and collaboration to resolve differences, and to achieve an approved budget by set statutory dates.
