South Africa’s government unveiled plans to bolster spending on health and defence while introducing a 0.5% increase in value-added tax (VAT) to fund the initiatives, according to AP News.
The move, announced by Finance Minister Enoch Godongwana, aims to address critical gaps in public services but has sparked concerns over rising living costs as consumers will face higher prices for goods, including food, and services.
An additional 28.9 billion rand ($1.5 billion) has been allocated to health spending in the 2025 budget. The funding will cover the salaries of approximately 9,300 medical personnel and 800 newly qualified doctors, addressing staffing shortages in clinics and hospitals. Overall health spending is projected to grow from 277 billion rand in 2024/25 to 329 billion rand in 2027/28.
The increase comes in response to cuts in US aid, particularly the cancellation of the President’s Emergency Plan for AIDS Relief (PEPFAR), which provided over $400 million annually to South Africa’s HIV programmes. South Africa, home to the world’s largest HIV population with 5.5 million people on life-saving antiretroviral drugs, relies on US funding for about 17% of its AIDS response budget.
Health Ministry spokesperson Foster Mohale stated that consultations on allocating state funds to mitigate the impact of US aid cuts would begin soon.
It’s too early to tell you how we are going to assist those affected by the funding freeze. But we’ll be able to communicate (soon) how we’re going to use this budget to try to cover some pressure areas.
To fund the increased spending on health, education, transportation, and security, the government plans to raise VAT by 0.5 percentage points in 2025–2026, with another 0.5 percentage point increase the following year. This will bring the VAT rate to 16% by 2026–2027.
The VAT hike has drawn sharp criticism from political and civic organisations, as it will disproportionately affect low-income households. However, Godongwana defended the decision.
VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us to extend the social wage.
The budget has yet to be approved by the cabinet and will be debated by parliamentary committees in the coming weeks. If passed, ministries will be free to allocate the funds as planned. However, if Parliament rejects the budget, new elections will be convened, and the administration will resign.
