The treasury has revealed plans to raise income taxes, as well as duties on alcohol and cigarettes, as part of a national budget presented a day after President Cyril Ramaphosa announced the general elections on May 29.
Finance Minister Enoch Godongwana stated, “South Africa’s economic performance has been weak, and difficult decisions are needed to ensure the economy grows and generates employment.”
The tax hikes coincide with the ruling African National Congress (ANC) facing challenges in the polls and the possibility of losing its parliamentary majority for the first time since the establishment of the democracy in 1994.
However, the budget allocates additional funds for social welfare payments, which are a crucial aspect of the ANC’s policies and public appeal.
Expenditure is set to rise by 42 billion rand ($2.2 billion) over the next three years to match inflation and expand access for the eligible population, according to the treasury.
By March 2027, nearly 20 million people, approximately a third of the population, will be beneficiaries of social grants, the treasury stated.
Finance Minister Godongwana emphasized the government’s awareness of the rising cost of living for the millions of South Africans dependent on these grants to meet their basic needs, during his address to parliament.
Excluding interest payments, approximately 60 percent of the budget is allocated to fund social services, which encompass public employees’ salaries, Finance Minister Godongwana noted.
Despite three decades passing since the end of apartheid, South Africa continues to grapple with elevated levels of poverty and unemployment, currently exceeding 32 percent.
South Africans are set to vote for provincial and national legislatures on May 29, with national lawmakers subsequently electing a president.
President Ramaphosa, aged 71, is vying for a second term leading what is often referred to as Africa’s most industrialized nation.
Amid allegations of corruption and mismanagement, the ANC is anticipated to fall below 50 percent for the first time in a national election, necessitating coalition partners to form a government.
Aleix Montana, an analyst at risk intelligence firm Verisk Maplecroft, remarked that Godongwana’s speech indicated the ANC’s focus on political survival over the sustainability of public finances.
“Public sector wage increases will forestall another round of difficult negotiations with unions that could overshadow the electoral campaign,” he stated.
Low economic growth, estimated at 0.6 percent in 2023 and averaging only 0.8 percent over the past decade, has entrenched poverty and unemployment, while the mounting debt is squeezing public finances.