Finance Minister Enoch Godongwana has highlighted the tough fiscal decisions facing South Africa, particularly a potential choice between raising the Value Added Tax (VAT) or reducing the COVID-19 Social Relief of Distress (SRD) grant.
As of March 9, 2025, this issue has dominated public discourse, with discussions focused on the upcoming budget.
Introduced in 2020 as a temporary measure to assist vulnerable citizens during the COVID-19 pandemic, the SRD grant has been extended multiple times, with the latest extension running until March 2026.
This has cost the government around R35 billion annually.
To counter the financial burden, a proposal to raise VAT by 2% (from 15% to 17%) was introduced earlier this year, aiming to raise approximately R58 billion to fund social programs and infrastructure.
However, the proposal met with significant opposition within the Government of National Unity (GNU) and was eventually shelved, leading to the postponement of the February 2025 budget speech.
Godongwana’s stance reflects the broader dilemma of balancing fiscal sustainability with the need to provide social support during economic hardship.
While raising VAT could generate revenue to maintain the SRD grant and fund essential services, it would also increase the cost of living for South Africans already struggling financially.
On the other hand, cutting the grant would impact over 8 million recipients, potentially exacerbating poverty and social unrest.