The minister of finance has announced the 1 percentage increase in Value added tax to 15 percentage in a move to reduce the budget deficit from the current 4, 3% to 3,5% in 2020/2021.
When the budget is in deficit, the government is forced to borrow more, resulting in higher debt-service costs. In 2017/2018, the government debt was 2.2 Million of GDP that is why South Africa raised VAT in order to find spending.
Treasury said the 1% VAT hike was less harmful to economic growth than raising other taxes. The department said increasing VAT was least damaging to economic growth and employment prospects.
The budget should be looked at totality, do not look at one or two items in the budget in isolation said Malusi Gigaba the minister of finance and he also added that the higher education funding and steps to improve governance and finances of SOE’s were among the budget’s positive attributes.