Speculation is rife over the fate of finance minister Enoch Godongwana’s much-maligned 50 basis point VAT hike, which is set to take effect on May 1 after an impasse of more than three months.
Much of the intrigue is being driven by political parties that have staked their reputation on its ultimate demise. There are reports that the National Treasury and SA Revenue Service are frantically searching for a way to sidestep the VAT increase. One peculiar suggestion is that the increase will be allowed to take effect and then be withdrawn after two months with “rebates to companies and consumers” paid out by the state.
Most such suggestions are akin to political fantasy, since the reality and facts have been outlined by Godongwana himself, in court papers and under oath. He has described the budget process as “consultative” and “complex”, taking place “at various levels within the National Treasury and government and over an extended period”.
It is worth recalling that the brains trust in the Treasury remains far superior to that of any other government department, or for that matter any other economic policy unit in any political party.
It is also true that service delivery fails at various levels of government due to poor policy choices, incompetence, mismanagement, reprioritisation and corruption in the departments in charge of line functions that are allocated resources by the Treasury — run in the main by the ANC.
Godongwana has explained in detail why he believed the alternatives to a VAT increase were a nonstarter. An increase in personal income tax would not yield the same revenue and could even be harmful to employment and savings, he said. SA’s personal income tax levels and top income tax rate of 45% are already far higher than in any other developing country.
Boosting corporate income tax was a nonstarter due to the potential impact on economic growth and employment, and the ratio of corporate tax rates to GDP in SA is already higher than in other OECD and African countries.
The minister goes on to explain that as finance minister he has the prerogative to adjust the VAT rate, emphasising that the rationale is to ensure that the government has the required revenue to function over the short term.
However, his prerogative does not negate the responsibility of parliament to determine whether that VAT rate becomes permanent.
The legislature has 12 months to make this call. The increase in VAT lapses if the legislature does not pass a law to make it permanent after this time. This could be done through the passing, or otherwise, of the money bills, which is set to unfold in the coming months.
Political parties have used the VAT hike as a political football in recent months and there is still posturing over which party played the biggest role in eliminating — or failing to eliminate — the VAT increase from the 2025 budget.
At the heart of it is that few of the parties involved, including the ANC, have fully grasped the process by which Godongwana and his team decided that a VAT hike is the least harmful or risky option available to raise revenue without cutting sorely needed social spending.
This week the Western Cape High Court will hear the DA and EFF’s challenge to the parliamentary process over the budget, and the constitutionality of the VAT Act. Parties such as ActionSA, Rise Mzansi, Bosa — and the ANC itself — will insist that the romantic notion of reversing the VAT Act in the next year is feasible.
The bottom line, though, is that the VAT hike — whether a short-term phenomenon or permanent — is the price SA is paying for the ANC’s inability to manage the broader economy for the past 15 years.
In effect, it is the price South Africans are paying for their choices at the ballot box.
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