A coalition of civil society organisations has called on parliament to reject the VAT hike set out in finance minister Enoch Godongwana’s budget last week, saying it will hit poor households disproportionately hard.
The budget proposes raising VAT from 15% to 16% over two years, starting with a 0.5 percentage point increase on May 1.
Without an outright majority, the ANC is no longer assured that parliament will pass the budget unchanged. The DA, the biggest opposition party within the government of national (GNU) unit, is vehemently opposed to increasing VAT, setting for a fierce debate and possible rejection of the budget when it is scrutinised by MPs in the weeks ahead.
The Budget Justice Coalition (BJC) said raising VAT was a regressive revenue-raising measure that risked deepening inequality and pushing millions of South Africans into further hardship. About 3.7-million households already face moderate to severe food insecurity, and 1.5-million endure severe hunger, according to the BJC.
The Treasury said last week it had sought to cushion poor households from the VAT increase by expanding the basket of zero-rated food items and increasing welfare grants by more than inflation.
“A VAT increase disproportionately affects poor and working class households, and if the 2018 VAT increase is anything to go by there is uncertainty about whether it will raise the expected revenue that this budget relies on,” said the BJC, which represents more than 20 civil society organisations including the Institute for Economic Justice, Section27 and Equal Education.
The 2018 VAT increase, from 14% to 15%, raised R22bn less than the Treasury had anticipated, according to the BJC.
“Despite claims of thorough examination of all alternatives, the Budget Review fails to provide adequate insight into the decision-making process or the rationale behind key choices. The BJC and others provided detailed proposals of more palatable alternatives to regressive VAT increases,” it said.
The BJC had suggested strengthening the state’s capacity to collect taxes, imposing a differentiated VAT system with higher rates for luxury items, raising tax rates for corporates and higher income earners, and instituting new wealth taxes.
The BJC welcomed the proposed budget increases for health and education, which it said were a step towards rebuilding essential public services.
The additional R10bn allocated for the expansion of childhood education over the medium-term expenditure framework is intended to increase the per-child subsidy from R17 per child per day to R24 per child per day and reach an extra 700,000 children.
While this was a crucial investment in early learning, the budget did not go far enough, as it did not provide funding for universal grade R, a new requirement set out in the Basic Education Laws Amendment Act, said the BJC.
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