South African Lawmakers are preparing to increase spending on healthcare and defense while offsetting costs through a controversial tax hike following the U.S. government’s decision to cut vital foreign aid. They also want to raise the value-added tax by 0.5%. This will increase the cost of living as consumers pay more for goods, including food and services.
South Africa bolsters health budget amid U.S. aid cuts
Finance Minister Enoch Godongwana said an extra 28.9 billion rand ($1.5 billion) was allotted for health spending in the 2025 budget. As the country scrambles to make up for aid cuts from the U.S. under the Trump administration, the extra money will pay the salaries of approximately 9,300 medical personnel in clinics and hospitals and about 800 newly qualified doctors.
Health spending is expected to grow from 277 billion rand in 2024/25 to 329 billion rand in 2027/28. The increase was borne out of concerns that cuts to USAID, the U.S. Agency for International Development, will stress South Africa’s health system, which cares for the world’s largest HIV population and has 5.5 million people on life-saving antiretroviral drugs.
President Donald Trump, in early February, cancelled PEPFAR, the President’s Emergency Plan for AIDS Relief, which provides over $400 million annually to South Africa’s HIV programs and nongovernmental organizations. This also affected Nigeria and other developing countries.
Even though 74% of South Africa’s HIV response is funded locally, some services depend on U.S. government funding, which makes up around 17% of the nation’s AIDS response budget. Despite being one of Africa’s most developed nations, South Africa struggles with high debt rates and slow GDP growth.
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Ministry spokesperson Foster Mohale said the health ministry will begin consultations on dividing up state funds, including allocations to fill the gaps left by the U.S. cuts.
“It’s too early to tell you how we are going to assist those affected by the funding freeze,” said Mohale. “But we’ll be able to communicate (soon) how we’re going to use this budget to try to cover some pressure areas.”
The latest budget has not yet been approved by the cabinet. Parliamentary committees will debate it in the coming weeks before putting it to a vote before the entire legislature. If it passes, the ministries can use the funds as allocated.Â
However, if Parliament rejects it, new elections are convened, and the administration resigns. Godongwana, reaffirming South Africa’s commitment to peacekeeping in the region as fighting intensifies in eastern Congo, expressed that some 5 billion rand ($271 million) was earmarked to strengthen military capabilities.
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The government plans to raise the consumption tax, or VAT, by half a percentage point in 2025–2026 to fund additional health, education, transportation, and security spending. This has sparked a backlash from political and civic organizations.Â
VAT is payable on goods and services, including food and electricity. Another 0.5% hike will be introduced the following year, putting the VAT rate at 16% by 2026–2027.
“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, attempting to fend off jeers from lawmakers. “The increase is also the most effective way to avoid further spending cuts and to enable us to extend the social wage.”
Although the proposed budget has yet to receive final approval from the cabinet, parliamentary committees will debate it in the coming weeks before a final vote. If rejected, the government would face new elections, adding another layer of uncertainty to South Africa’s financial future.