Enoch Godongwana, the finance minister, is on solid ground in the unfolding drama over his proposed VAT rate increase.
This is according to a legal opinion for Parliament's standing committee on appropriations, which limits the nonpartisan advisory body’s immediate ability to challenge the decision.
“To the question of whether amendments to the fiscal framework and the revenue proposals will prevent the increase of the rate of VAT commencing on May 1, the answer is, in my opinion, negative,” the senior parliamentary legal adviser has told the standing committee on appropriations in parliament in a note obtained by Business Day.
Last week, Godongwana unveiled plans to hike VAT by a 0.5 percentage point for the coming fiscal year and the next to plug an urgent revenue gap. The move prompted an angry response from government of national unity members and civil society on grounds that it would burden SA’s already hard-pressed consumers.
But Godongwana’s decision is legally sound and cannot be blocked before its implementation at the start of the 2025/26 fiscal year in May. Any attempt to roll it back or modify the increase would require a new money bill, which only the finance minister has the authority to introduce, reads the legal note, the authenticity of which was confirmed by Mmusi Maimane, chair of the parliamentary committee on appropriations.
“To undo the operation of that provision, it would be necessary to introduce a bill that abolishes or reduces, or grants, exemptions from the increase in the rate of VAT ... Only the cabinet member for national financial matters — in other words the minister of finance — may introduce a money bill,” the legal note reads. In confirming the legal note’s authenticity, Maimane added it formed the basis of parliament’s approach.
“If the fiscal framework is rejected, then you have a legal dispute. What becomes absolutely crucial is whether the fiscal framework is passed by May 3,” he said, referring to the broader economic, spending and fiscal policies in the budget that need collective agreement.
“We are trying hard to ensure the people’s views are represented because it is not political parties but parliament that represents the people. What we would like to see is amendments to ensure the reduction of spending on that which does not help economic growth. This budget’s biggest problem is it failed to reallocate and realign spending to foster economic growth,” Maimane said.
It is unlikely that Godongwana will backtrack on the VAT decision, and the legal opinion only reinforces his prerogative on how the budget framework, which needs cabinet approval,is financed.
Never before has an ANC finance minister had to climb down on a crucial element contained in the budget.
The advice for the parliamentary budget office, an advisory body to committees in their oversight of government finances, comes amid debate about the budgeting process, especially the detailed decision on tax adjustments or how the Treasury funds the budget. This decision has historically fallen under the department.
In an explicit acknowledgment that the process needs an overhaul, the Treasury said last week that the next budget will include political and technical input to avoid a political deadlock similar to that which led to the three-week delay in the tabling of the budget.
The parliamentary budget office has cautioned against pushing through the VAT rate before parliamentary approval, saying it would undermine public participation and accountability. “This would be particularly concerning as the approved fiscal framework (assuming this is done within 16 days or as soon as reasonably possible thereafter) would presumably already reflect the increased revenue from the VAT new rate of 15.5%,” the parliamentary budget office’s presentation reads.
All eyes will be on parliament in the weeks ahead as the budget makes its way through the approval process, with the two largest parties in disagreement over its contents. In the end, Godongwana had to reduce the VAT hike to two increases of a half percentage point in successive years. That has not been accepted by the DA.
Two committees will be in the spotlight: the standing committee on finance chaired by the ANC’s Joe Maswanganyi, and the standing committee on appropriations.
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