After the National Treasury’s domkop decision to hike the VAT rate, I hope more South Africans will agree with what I have been saying for years. The Treasury has become too powerful and arrogant, despite its failure to grow GDP per capita, a country’s real bottom line, over the past 17 years.
It has also failed to create enough jobs to absorb new entrants into the labour market, and those who were previously unemployed. If SA Inc was a company its shareholders would have fired the Treasury and the SA Reserve Bank.
The Treasury has become more powerful than President Cyril Ramaphosa, as it cancels many of the things he says he wants to do. In September 2018, after the country entered into a recession, he announced a R400bn Infrastructure Fund. In the 2019 budget the Treasury slashed the size of the fund to R100bn. Six years later it has not made an allocation to the imaginary fund.
In April 2020 Ramaphosa announced a R500bn stimulus package. The Treasury cancelled the stimulus and all the spending — R60bn from the Unemployment Insurance Fund and R20bn from the failed R200bn Loan Guarantee Fund — was below the budget line. From 2020-24, above-the-line real per capita non-interest spending declined 16%. Ramaphosa seems to feel that he is not competent to decide on economic policy and always defers to the Treasury.
Treasury officials have become like little prime ministers who are more powerful than cabinet ministers.
All finance ministers end up singing from the Treasury hymn sheet of structural reform and austerity. Every budget since 2012 has been the same, with the ministers seemingly puppets of the officials.
Now we know the Treasury was so arrogant that it was normal practice to arrive in parliament without having told most ANC cabinet ministers what was in the budget. On February 19 they thought there would be no problem with this practice, though the ANC was now in a coalition with nine other parties.
It gets worse — in a recent speech finance minister Enoch Godongwana said he had woken up one day and decided that: “I am sick and tired of being attacked for austerity. This time I am going to raise tax.” So the decision to hike VAT was an individual’s whim, and there were no democratic deliberations within his own party, let alone other parties or the rest of the country.
In an interview with Moneyweb, Godongwana agreed with what I have been saying for many years — that endless budget cuts are a self-defeating policy that has resulted in a higher debt ratio. “So we have taken a different strategy this time, and that strategy is to go over to the revenue side of the equation,” he said.
It is disturbing that Godongwana appears not to know the definition of austerity, which refers to spending cuts or regressive tax increases, or a combination of both, to balance the books. Regressive tax increases are just another way of implementing failed austerity policies. The few people who say the Treasury had no option but to hike VAT must explain how additional revenues of only R75bn — if the increase does materialise — will make a difference within the context of a gross financing requirement of R1.6-trillion during the three year medium-term expenditure framework period.
Why are we wasting so much time debating a pointless VAT increase that will not reduce the debt ratio? One day, Godongwana or his successor will realise that I am right and the only way to reduce the debt ratio is to stop this insanity of trying different combinations of austerity each year and expecting a different result.
Nobody would cut their spending to balance the books if they knew this would result in a lower salary. SA needs a fiscal stimulus that grows the economy and reduces the debt ratio.
• Gqubule is an adviser on economic development and transformation.
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