In Johannesburg, South Africa, lawmakers have announced plans to enhance the nation’s health and defense budgets, but they have also decided to implement a 0.5% increase in value-added tax (VAT). This rise in VAT is expected to impact the cost of living by raising consumer prices on goods, including essential items such as food, as well as various services.
Finance Minister Enoch Godongwana noted that the 2025 budget would include an additional 28.9 billion rand (approximately $1.5 billion) dedicated to health expenditure. This move aims to counterbalance the financial loss stemming from reduced U.S. aid following changes in Washington’s foreign assistance priorities during the Trump administration. The increased funding will enable the hiring of around 9,300 medical professionals for clinics and hospitals, along with about 800 new doctors.
Projected growth in health spending suggests it will rise from 277 billion rand in the 2024/25 fiscal year to 329 billion rand by 2027/28. This surge in funding arrives amid growing concerns over South Africa’s healthcare system, tasked with managing the world’s largest HIV-positive population and supporting 5.5 million individuals on essential antiretroviral treatment. Cuts in funding from USAID, the U.S. agency for international development, pose a potential strain on this already burdened system.
Earlier this year, former President Donald Trump eliminated the President’s Emergency Plan for AIDS Relief (PEPFAR), which had contributed over $400 million annually to HIV programs and non-governmental organizations in South Africa. Though the country covers 74% of its HIV response expenses domestically, U.S. aid represents about 17% of the budget for the AIDS response.
Despite South Africa’s status as one of the most advanced nations on the African continent, it grapples with significant debt levels and sluggish GDP growth. The health ministry will soon initiate discussions on the allocation of state funds to address gaps left by diminishing U.S. support, according to ministry spokesperson Foster Mohale. “It’s too early to tell you how we are going to assist those affected by the funding freeze,” Mohale stated, adding that further communication will be forthcoming on how the budget could address these critical needs.
The newly proposed budget awaits cabinet approval, with parliamentary committees set to debate it in the weeks ahead before it is put to a legislative vote. Approval would allow ministries to utilize the assigned funds while rejection would necessitate new elections and a government resignation.
Additionally, Godongwana disclosed that approximately 5 billion rand (about $271 million) will be allocated to strengthen military forces, reaffirming South Africa’s commitment to regional peacekeeping efforts amid escalating violence in eastern Congo.
To support increased spending in areas like health, education, transportation, and security, the government intends to boost the VAT by half a percentage point in the 2025–2026 fiscal year, despite political and public dissent. VAT is levied on a variety of goods and services, including essentials like food and electricity. Another similar increment is slated for the subsequent year, eventually raising the VAT rate to 16% by the 2026–2027 fiscal period.
“VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered,” said the finance minister in response to resistance from lawmakers. “The increase is also the most effective way to avoid further spending cuts and to enable us to extend the social wage.”
