GNU partners leaves ANC out in the cold over VAT increase

FINANCE Minister Enoch Godongwana will have to navigate a Budget Speech that may heighten tensions or even collapse the Government of National Unity (GNU) as almost all ANC coalition partners have made it clear they were against an attempt to increase Value-Added Tax (VAT).

The minister is expected to table his highly anticipated Budget Speech on Wednesday amid speculation that he may increase VAT or cut government spending.

The move to hike the VAT has been met with resistance from various political parties, which have urged the minister to consider alternative measures.

Godongwana has been under fire this week after he reportedly said that he won’t raise VAT if he can cut the Covid-19 Social Relief of Distress (SRD) grants.

The speech was delayed last month due to disagreements over Godongwana’s proposed VAT hike. The proposal to increase VAT by 2% (from 15% to 17%) was made earlier this year in an attempt to raise a R58 billion shortfall to pay for essential infrastructure and social initiatives.

However, this plan was later abandoned, and the Budget Speech was postponed due to objections from GNU partners.

Godongwana is reportadly considering a 0.5% increase in VAT, which has been met with opposition from fellow GNU parties such as the DA, the Freedom Front Plus (FF Plus), the Patriotic Alliance, the Pan Africanist Congress (PAC), and the GOOD Party.

DA finance spokesperson Mark Burke maintained that his party would not stand for any VAT increase.

"We're pushing for six elements in the Budget... First, no increase in VAT, Personal Income, or Corporate Tax rates. South Africans are already overburdened," Burke said.

The DA has proposed alternative measures, including reducing inefficient spending, allocating more money to the South African Revenue Service (SARS) to increase tax efficiency, and enacting pro-growth reforms.

The FF Plus has echoed similar sentiments, with new leader Dr Corné Mulder stating that the government should focus on cutting back on unnecessary expenses rather than increasing taxes.

"The previous VAT increase has already shown that VAT is not a goose laying golden eggs amid a bankrupt economy and impoverished community. The truth is that it will further stagnate the economy and exacerbate the economic crisis," Mulder said.

The GOOD Party has suggested alternative measures, including reducing the cap on tax-free retirement savings and implementing a wealth tax.

GOOD secretary-general Brett Herron said: “There are progressive ways for the fiscus to raise additional funding without having to increase VAT, income or company tax, but this would require courageous decision-making in the GNU about inequality and the increasingly pressing need to redistribute wealth.

"One such immediately available mechanism would be to reduce the cap on tax-free retirement savings. A very small proportion of South Africans can afford to save R350 000 a year and put it away, tax-free, for their retirement. Targeting revenue such as this, from people who can afford it – instead of all people, such as a VAT increase – will make up a large chunk of the R58 Billion budget shortfall articulated in last month’s budget-that-wasn’t.”

PAC Secretary-General Apa Pooe said that his party firmly believes that any budgetary measures should be pro-poor and ensure that the burden of economic challenges does not fall on the most vulnerable in society.

“The government must prioritise the needs of the people by ensuring that essential services are adequately funded while maintaining fiscal prudence.

“The focus should be on efficient resource allocation, curbing wasteful expenditure, and fostering economic policies that uplift the marginalised. South Africans deserve a Budget that is people-centred, ensuring that no one is left behind,” Pooe said.

The Patriotic Alliance has also urged the government to prioritise the needs of the people, ensuring that essential services are adequately funded while maintaining fiscal prudence.

The Congress of South African Trade Unions (Cosatu), an ANC alliance partner, has also expressed opposition to any VAT increase, stating that it would further deplete workers' already meagre wages and spike inflation.

Cosatu had suggested that the Treasury start discussions with the Government Employees Pension Fund (GEPF) over a pension contribution holiday, but it remains to be seen if the idea will make the speech.

"We hope that further engagements will take place, including after the Budget has been tabled at Parliament to ensure that we review the totality of government expenditure and revenue options," said Cosatu spokesperson Matthew Parks.

In their opinion piece published in the Cape Times on Wednesday, Dr Ambrosé Du Plessis & Terrance Molobela who are with the Department of Public Administration and Management at the University of the Free State, said: “The so-called marriage of inconvenience between the coalition partners appears increasingly centred on securing positions rather than creating policies to address the pressing needs of South Africa’s citizens. The budget, a document that should have been a focal point of discussion since the formation of the coalition, has been delayed until the 11th hour. This delay in addressing the country’s fiscal needs points to a broader failure within the GNU. The South African economy, already battered by years of stagnation and underperformance, cannot afford further dithering.”

Cape Times