Finance minister Enoch Godongwana does not need to increase VAT by 50 basis points to raise R13.5bn, because the money could be easily found elsewhere in a budget of more than R2-trillion, says retired judge and tax expert Dennis Davis.
Davis chaired the eponymous tax committee that assessed SA’s tax policies and made recommendations to the National Treasury.
In an address to the Cape Town Press Club on Tuesday, he said he failed to understand how the need to raise R13.5bn could have been a problem as the sum could be found by cutting expenditure. One area that could be looked at was cutting the public service to essential posts only.
“I really can’t understand what the fuss is about R13.5bn in a budget of over R2-trillion. Can it surely not be that you can find R13.5bn in savings on expenditure? Did we really need to go to the wall for R13.5bn? That is something very difficult for me to get my head around. Is this an economic question or a political question? If it is an economic question it really bemuses me because of the relatively small sum of money involved.”
The imposition of the VAT increase has caused a political uproar, with the DA refusing to support the 2025/26 budget. Other opposition parties are prepared to vote in favour of the budget only if the VAT increase, scheduled for May 1, is scrapped.
An urgent application by the DA to the Western Cape High Court to have the VAT Act declared unconstitutional insofar as it gave the minister of finance the unilateral power to declare an increase without parliamentary involvement was heard on Tuesday.
I really can’t understand what the fuss is about R13.5bn in a budget of over R2-trillion. Can it surely not be that you can find R13.5bn in savings on expenditure?
Davis said the controversy over the proposed VAT increase had stimulated a healthy debate over tax policy, which had to focus on who bore the burden for the reconstruction of SA’s deeply unequal society.
He urged that a committee be set up to investigate broadening the tax base, the possibility of introducing a wealth tax and sin taxes, and increased funding for the SA Revenue Service (Sars) to address tax evasion.
“We need this very quickly or we will repeat the same nightmare next year,” Davis said.
The central problem facing the fiscus is SA’s poor economic growth rate, which the Treasury has forecast at 1.9% in 2025 — below the population growth rate — despite the implementation of structural reforms to address logistical obstacles to business activity.
The budget needed to focus on the generation of economic growth to ease debt servicing costs, which consume 22c in every rand of expenditure, he said.
He took aim at the public sector wage bill and the government’s kowtowing to the demands of public sector trade unions, which recently secured an above-inflation pay increase of 5.5%. The public sector wage bill accounts for about a third of total expenditure, while the cost of the public administration is 3.5% more than the average for the OECD member countries.
“The problem facing us, bluntly put, is a political rather than an economic one and I think the public sector wage bill figure is the most frightening of all,” Davis said.
A productivity analysis of the public sector was needed to assess wage increases, Davis said. He questioned how seriously the government would take the expenditure reviews demanded by opposition parties and promised by Godongwana. “I don’t know if the ANC has the mindset to do this,” he said, adding that VAT had become popular worldwide as a source of revenue over the past 20 years because it is the easiest tax to implement and hard to evade.
Opposition parties such as the EFF have demanded the introduction of a wealth tax, but Davis said Sars had insufficient data on taxpayers to compile a comprehensive asset base register. In addition, the question remained whether it would generate the amount of revenue to justify it.
“I am not saying we should not have a wealth tax,” he said, but added it was not possible to introduce it in a month. It was also “crazy to think government could introduce a sin tax in six months”.
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