WCG welcomes scrapping of VAT hike
Honourable Speaker,
The Western Cape Government welcomes the scrapping of the VAT increase hike. It is not a neutral policy. It is regressive and anti-poor. It is would have been a direct assault on the hard-working people of South Africa.
As we reflect on this national decision we must unpack the potential impact it could have had on households and critical public services across our province.
IMPACT ON WCG PROCUREMENT
Speaker, procurement sits at the heart of service delivery. Once compensation of employees is accounted for (55 per cent of our provincial budget), the next largest portion goes to Goods and Services, amounting to R19.074 billion or 21.7 per cent of our total 2025/26 budget. A 0.5 per cent VAT increase, not accounting for zero-rated, exempt goods or VAT exempt suppliers, would have forced us to find an estimated additional R95.37 million for medical supplies and equipment; education materials, computers; and building maintenance and construction.
These are not luxuries, but necessities of a functioning service delivery-obsessed government.
Our top five procuring departments are:
- Health and Wellness (50.9 per cent)
- Education (18.6 per cent)
- Infrastructure (13.3 per cent)
- Premier (6.4 per cent); and
- Mobility (4.9 per cent).
Preliminary data on our top ten suppliers shows almost R9.9 billion in expenditure for 11 months ending March 2025. A 0.5 per cent VAT increase on this amount would have equalled a R46 million hike.
We could have seen potential increases of
- R8.8 million for building and contractor costs,
- R3.18 million for laboratory services, and
- R4.22 million for medicine, medical supplies and equipment.
These figures are conservative, as they don’t include the impact of VAT would have had on transfers to our entities or municipalities.
THE DOORS OF THE WESTERN CAPE GOVERNMENT REMAIN OPEN
Speaker, given the impact the announcement of the withdrawal of the national Appropriations Bill (2025) and Division of Revenue Bill (2025), there has been concern how this might impact on the Western Cape Budget.
The start of the financial year was 01 April 2025. Today is the 24th.
Therefore, according to Section 29 of the Public Finance Management Act, 1999 (PFMA), our national and provincial governments will spend in terms of the 2024 national and provincial budgets.
For the first four months of the new 2025 financial year we are allowed to spend up to 45 per cent of our total amount appropriated in the previous annual budget; and for each of the following months we are allowed to spend up to 10 per cent of our total amount appropriated in the previous annual budget.
However, in total, you cannot exceed the full 100 per cent of the total amount of the previous budget.
So if you had a total budget of R100 in 2024 (including your adjusted admounts), you may not spend more than R45 in the first 4 months of the new 2025 financial year, and you may not spend more than R10 for each month thereafter.
You will however notice that this will amount to a total of R125 which is a concern because you are only allowed to spend up to the R100 which you had previously. That additional R25 could amount to unauthorised expenditure. Therefore, we must manage our cashflow in such a manner to make sure we never exceed 100 per cent.
As a province, we wish to assure the people of the Western Cape that we will work with care to ensure that we do not exceed the legal limits.
In the meantime, we will spend against our Provincial Revenue Fund.
I would like to remind the house that the Western Cape Government took a prudent approach with its own provincial budget and I did not table any ‘new’ money that was announced as attached to the VAT hike announcement. Therefore, the provincial budget which we tabled, was in line with the previous national Fiscal Framework – as if no VAT hike existed.
The Western Cape Government has always been clear. We have significant budget pressures, especially in health, education, and social services. But funding should come from fast-tracking economic growth reforms, cutting wasteful expenditure, and reprioritising spending; not increasing VAT.
If through implementing these proposals, additional funding flows to provinces, we will bring an adjustment budget to pass such funding along.
We however call on the Minister of Finance to ensure that he does not cut the pre-VAT provincial fiscal framework, as the impact of this would have a devastating impact on provincial service delivery. Such a decision would be illogical and fiscally irresponsible.
Today is a victory for the hard-working people of South Africa and the Western Cape. It is a day we will always remember, a day where we can hold up our Constitution and remind the national government – it is not your money. It is the people’s money. And “[w]e, the people of South Africa” say NO to VAT.
Speaker, I thank you.