HILARY JOFFE: VAT hike is no more, but time-constrained challenges await

The VAT increase is gone, but the hard work of engaging with the budget is just beginning.

At this stage it is unclear if any party is ready to face the trade-offs and make the tough choices that will be needed.

They don’t want government to increase borrowing, or to increase taxes. But they don’t want it to go back to “austerity” or cut social spending either.

Finance minister Enoch Godongwana had proposed two successive half percentage point VAT increases that would have raised about R69bn over the next three years, net of the extra zero ratings, which are now also gone.

That would have added about R30bn a year to government revenue over the long term. That’s a large hole to fill. And government’s total revenue hole could turn out much larger if the IMF is right about SA’s and the world’s bleak growth prospects.

So how to plug the VAT hole? All government of national unity parties have agreed on a thorough review of government spending, something the Treasury had long urged.

President Cyril Ramaphosa has promised one. Many proposals for spending cuts have come from all sides. But what does the Treasury do immediately to find the about R11bn needed for the current year, as well as the larger sums for the next two years of the fiscal framework?

Laudable as they are, some of the most popular of the spending proposals are small money in the bigger scheme of things. Cutting the bloated cabinet and scrapping unnecessary government departments may be essential, but at best saves hundreds of millions, not billions.

Crucially, warm bodies will have to be fired or retrenched if those savings are to be achieved. We haven’t seen any of the parties advocating that. It also takes time.

Laudable as they are, some of the most popular of the spending proposals are small money in the bigger scheme of things.

Cutting spending on travel, catering, advertising and consultants is another popular one that could save a few billions, though government departments have already been doing that for years, seemingly making government less efficient, not more so.

Then there are the larger, more far-reaching proposals that would be big money. But those will not deliver for this year, or even necessarily next year. They take time. In many cases they require legislative changes.

The skills levy raises R20bn annually that goes to Sector Education Training Authorities (Setas), many of which are dysfunctional or corrupt or simply haven’t delivered the training the economy needs.

The DA and others want to see the Setas cut and the levy better used. But that requires changes to legislation, which takes time. It would require proper policy analysis and debate.

Likewise the multiple public employment programmes on which government spends an estimated R20bn, many of which clearly need to be culled.

All require time — and often hard political choices. In the short term the only feasible way to cut is simply to un-allocate a chunk of the extra R142bn of spending the budget allocated, R58bn of it in the current year. The Treasury will surely be reluctant to take out allocations to social and economic infrastructure, which aim to lift economic growth.

It can’t cut the extra money for the above-inflation public sector wage settlement, or the social relief of distress grant. But it might well propose cutting above-inflation increases to social grants that were meant to compensate the poor for the VAT hike.

And it may have to urge government to avoid committing to permanent increases in personnel costs without a more permanent source of revenue to fund these. That may mean walking back the extra spending on nurses, doctors, teachers and prison warders that was at the heart of Godongwana’s proposal to boost front-line public services.

This is clearly the furthest thing from what those who opposed the VAT hikes had in mind. But it’s hard to see alternatives that can reliably close the gap in the short term.

• Joffe is editor-at-large.