VAT about turn may be short-lived relief for GNU, investors

Mushtak Parker 

THE South African Constitution and Bill of Rights promulgated in 1996 by Madiba’s first administration in a free country  are generally regarded as two of the most progressive in the world of democracies, until of course even those were subjected to state capture during the Zuma presidency. 

Whether the constitutional architects ever envisaged the resort to the constitutional and supreme courts by often disgruntled, frustrated, corrupt and delusionally undemocratic politicians through their frivolous and arbitrary actions, would start to dominate the polity through the practice of lawfare seems ambivalent. 

There is the legitimate resort to the courts by both politicians and citizens for the independent judiciary, a prerequisite of a liberal democracy, to decide on a cornucopia of matters relating to executive powers, the role of parliament, separation of powers between church and state, freedom of speech and movement, the rights of citizens in every socio-economic activity and so on. 

In the latter case the lawfare playbook is unfolding in areas touching the very core of democratic governance and its potential impact on policy and society. In the US the pushback against the policy on the hoof insanity of the Trump administration which has targeted the judiciary, the media, the scientists, the supposedly impartial bureaucracy, and the global trading partners of the US, has precipitated a spate of injunctions against the President and his cabinet cabal. 

His disdain for the prevailing rules-based world order and the rule of law is bad enough. The fact that he insists on the various estates of a democratic polity to be subject to his dictates and policies betrays a fundamental misunderstanding of liberal democracy. The State of California is suing him for his crazy imposition of arbitrary tariffs on US trading partners. Others are suing his administration for the arbitrary sacking of hundreds of thousands of federal employees by the Orwellian Department of Government Efficiency (DOGE) run by an unelected techno-oligarch Elon Musk. 

The irony is that this president, with plenty of delusional form from his first term, was empowered by a landslide election victory last November. In the UK the Starmer government is now dealing with the consequences of a ruling by the Supreme Court that a man and woman’s gender is determined by their biological sex at birth, albeit the government has stressed the importance of the rights of the trans community. 

It is in South Africa that the use of lawfare or at least the threat of it, has had arguably the most serious immediate impact following the legal challenge brought by the Institute of Race Relations (IRR) against the 1% increase in VAT to be implemented by two 0.5% tranches by 1 May 2025 proposed by Finance Minister Enoch Godongwana in his 2025 Budget in March. 

In his 51-page affidavit to a similar motion brought by the DA and the EFF as an intervention applicant in front of Western Cape Division in Cape Town of the High Court of South Africa on April 16, Godongwana robustly defended the basis of his Budget and the rationale of the decision to increase VAT by 1% increasing the overall rate from 15% to 16%. The DA’s challenge, he contended, is fundamentally flawed and has no basis for contesting the constitutionality or unconstitutionality of the VAT increase provision. Similarly, the EFF’s position is wholly “unsupported,” he argued. The problem is that the modus operandi of both the ANC and the DA, the two largest parties in the GNU, are highly flawed and hostage to their respective ideological heritage and schisms. “It (the DA),” emphasised Godongwana, “is well resourced and has full access to the democratic process and the legislative tools available to all members of Parliament. It can seek to amend or oppose the relevant money bills, persuade other parties, and act within the bounds of parliamentary procedure.”

Here's the quandary. In his virtual address to the 2023 Budget Roundtable held in Cape Town on April 23, Deputy President Shipokosa Paulus Mashatile revealed that “following the first Cabinet meeting, during which we agreed to postpone the budget presentation, in our subsequent Cabinet meeting President Cyril Ramaphosa appointed a Cabinet Committee, chaired by myself, comprising of Ministers Gondongwana, Steenhuisen, Mantashe, Gwarube, Creecy, and Motshekga. The task of this Committee was to find a solution to the VAT increase proposal by the Minister of Finance and the National Treasury. The committee did its work and agreed to the reduced 0.5% VAT increase with the provision that we must invest in the implementation of the expenditure budget allocation so that we can address revenue constraints so that we avoid further tax increases.”

And yet the DA saw fit to take Godongwana to Court on a constitutional casuistry, while its leader was privy to a due Cabinet process which, according to Mashatile, agreed on the proposed VAT hike. Godongwana argued in his affidavit that “the courtroom should not become the arena in which political differences within the executive or legislature are to be resolved. And this should certainly not happen on an urgent basis and in a manner that risks severely disrupting government operations on important matters such as the fiscus. I respectfully submit that the Court should resist intervening in a matter that, at its core, is a political disagreement dressed in the language of constitutional litigation.”

Against this, Godongwana saw fit to reverse his proposed VAT increase on April 24. “The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees. By not increasing VAT, estimated revenue will fall short by around R75 billion over the medium-term,” stressed the Treasury. 

One way of making up some of the expenditure shortfall, at least in the immediate future, could be through “any additional revenue collected by SARS.” The dichotomy is breathtaking. Maybe the finance minister has a point. The DA comes across as an entitled opportunistic coalition participant, savvy in the language of dissent, of policies aligned to its ideological framework instead of the historical circumstances of a country that has only three decades ago emerged from the brutality of apartheid, and of populist pious platitudes. 

Not that the ANC is a beacon of transparency and good governance. A senior ANC official confided that since the days of the state capture, the party has struggled to articulate its policies and position on various issues. This must be considered in the context of all the other caveats – government ineffectiveness, self-enrichment, policy shortcomings and so on. The VAT reversal is another first for the Treasury, which since the dawn of democracy also saw the postponement of the 2025 Budget Speech. For investors, governments, business, and South Africans per se, the reversal and the survival of the GNU may be a sigh of relief. But how long will it be before the GNU becomes “a Coalition of the Unwilling?” 

Mashatile in his Budget Roundtable admitted that the current budgetary process is not transparent and inclusive enough. His proposal however of “returning to a People’s Budget that allows for public participation, scrutiny, and informed decision-making, ultimately leading to better resource allocation and improved service delivery to the citizenry,” is as unrealistic, chaotic and economically illiterate as it is naive.”

Parker is an economist and writer based