The stage is set for a fierce parliamentary debate after finance minister Enoch Godongwana tabled a budget that backed down halfway on the VAT hike he proposed last month but hit individual taxpayers with so-called fiscal drag to help fund additions to government spending, particularly on front-line services.
Godongwana got the go-ahead to table Wednesday’s budget after the cabinet delayed his scheduled February 19 presentation because of disagreement over the two percentage-point VAT increase he proposed in a “tax and spend” budget that walked back from the spending cuts of previous years.
His revised budget — which he said was one of five versions the Treasury presented to the cabinet during the talks of the past few weeks — instead proposes two half-percentage hikes over two years to lift the VAT rate to 16%.
It also provides zero relief to personal taxpayers for the effects of inflation on their tax rates or medical tax credits.
While it reduces additional spending that Godongwana had proposed in February, mainly through smaller increases to social grants, it does not cut spending on wasteful programmes as parties including the DA had proposed it should.
Still, it remains on course to deliver on the government’s promise to stabilise the public debt ratio in 2025/26, though this will now peak at 76.2% of GDP, up from the 75.5% estimated a year ago.
“At least I’m tabling a budget,” the minister told journalists on Wednesday morning.
“The outcome will be a product of negotiations between the different parties ... We are entering a new terrain ... We are all new to this government of national unity (GNU),” he said.
Though parliament tended to be a rubber stamp for the budget during the ANC government, legislation allows for MPs to make changes. But the fiscal framework, which sets the outlines, must be approved within the next few weeks.
Though opposition to last month’s budget came from across the board in the GNU cabinet, the DA’s vote in particular could be a sticking point. The party has been resolutely opposed to any increase in VAT, but Godongwana said the issue was less about the tax than about the DA’s other grievances over the Basic Education Laws Amendment Act, National Health Insurance Act and the Expropriation Act.
The DA had said it would accept a 0.5 percentage-point VAT increase on condition President Cyril Ramaphosa addressed these other issues, the minister said.
However, DA leader John Steenhuisen said on Wednesday the party would not support the budget, so it remains unclear how the parliamentary process will unfold. This year’s proposed VAT increase is due to come into effect on May 1.
Wednesday’s budget proposes to reduce additional government spending to R142bn over the next three years, from the R173bn Godongwana proposed earlier, mainly through R15bn less through inflation-linked increases to social grants such as the old age pension and child-support grants, and less for home affairs too.
Front-line services, particularly in health and education, will still get an extra R70bn, with additional spending pencilled in for above-inflation public sector pay increases, infrastructure projects, the social relief of distress grant and the early retirement scheme for government officials.
Godongwana said Ramaphosa would establish a joint presidency-treasury committee to review spending.
The minister has also bowed to pressure from SA Revenue Service (Sars) commissioner Edward Kieswetter to give the tax authority more money to enable it to tackle noncompliance and illicit activity and so collect more revenue.
Godongwana added R4bn to the Sars budget, bringing total extra spending on the tax authority to R7.5bn over the medium term.
The revised new tax measures are expected to raise an additional R119bn over the medium term, compared with the R182bn the February 19 budget would have raised.
The Treasury expects to raise R19.5bn in the 2025/26 fiscal year by declining to grant taxpayers any relief for the impact of inflation on their tax brackets or medical tax credits. That is more than the R13.5bn he expects to raise with the first VAT hike, which will cushion the poor by extending the zero-rated basket of staple foods.
The rand and bonds held steady on the budget announcement news, with economists turning their attention to how the politics of the budget would play out in parliament.
Lawson Naidoo, director of the Council for the Advancement of the SA Constitution, said now that the budget was tabled, parties had some breathing room to find each other. Parliament had the power to amend the budget, even though it had not used this before.
Social Research Foundation director Frans Cronje said it was unclear how the impasse would end. Among the worst-case scenarios was a vote of no confidence in Ramaphosa.
“This is quite a stand-off and I think in the early days of the GNU the partners didn’t really employ their relative power ... They’ve started to do that now,” Cronje said.
With Natasha Marrian
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