By Thebe Mabanga
Finance Minister Enoch Godongwana finally got to present his budget in what feels like an improvised, messy and unworkable plan that is unlikely to bring stability to the Government of National Unity (GNU) or demonstrate the democratic maturity that the minister craves.
Godongwana now faces the challenge of navigating the budget through Parliament with opposition from within.
The first and biggest problem with this budget is the actual reasons for the VAT hike, beyond the obvious need to plug a revenue hole. In the withdrawn budget speech, Godongwana said the reason for the increase was to fund the public servants wage bill, Early Childhood Development, revitalise passenger rail services and increase grants for the vulnerable.
So the ANC basically used public servants, children, the working class and the poor and vulnerable as an excuse to strain the consumer. Nobody is buying it.
The truth is the public service wage bill and passenger rail service has been funded through increased borrowing before and while the ECD subsidy was being adjusted. For the first time since 2019 it has increased from R17 to R24 per child per day.
One feels this could be achieved through reprioritising spending rather than increasing VAT.
The Social Relief of Distress Grant is a bit tricky. It has now been extended by another year at a cost of R 32 billion, but the reality is part of the reason it was retained beyond the Covid-19 pandemic, for which it was introduced, is because government had a tax windfall from the commodities boom from 2020 to 2022. With that gone, Treasury had to scramble for funds, but a VAT increase still feels extreme.
If the ANC wanted to assert its pro-poor credentials, it could have done one of two things. Either allow the debt-to-GDP ratio to go beyond this year’s peak of 76,5% by borrowing slightly more. Or it could allow the budget deficit to breach the current level of 5% of GDP over the MTEF instead of easing to 3,5% in 2027/2028.
Either of these measures would mean borrowing more, but raising the debt-to-GDP ratio or the budget deficit by 1 percentage point would put off the need for a VAT increase, certainly in this financial year.
As economist Duma Gqubule notes, South Africa does not have a debt problem, but rather a GDP problem. If you increase your GDP, then your debt to GDP ratio lowers and we are currently below the global average.
But faced with options of confronting markets and rating agencies with increased borrowing or punish consumers (and voters) who are reeling from the pandemic and cost of living crisis over the past five years, the ANC chose the latter.
Another problem with this budget is that it is underpinned by an unrealistic growth forecast. Treasury says the economy will grow by 1,9% this year after missing last year’s growth target of 0,8%. Treasury expects consumer spending, driven by cash strapped consumers as well as its economic reforms, to bear fruit and yield an average growth of 1,8% over the next three years.
But we know how this script will play out. Come the Medium-Term Budget Policy Statement in October, the growth forecasts will be revised downwards and this time next year it will be missed. This means lower revenue and another need to plug a hole, this time with no room for a VAT increase.
The R11 billion provisional allocation to get 30,000 public servants to retire early is an admission that no one wants a civil servants’ strike, which is why they have an above inflation settlement for the medium term. The trouble with it is that the brightest and most ambitious tend to leave, leaving the public service with unmotivated workers cruising to normal retirement.
So, what will happen now? Or what should happen?
The first hurdle that the minister will face is when he appears before the Standing Committee on Appropriations and the Standing Committee on Finance on Friday, where he will have to defend the VAT hikes.
The Appropriations Committee is chaired by Build One South Africa leader Mmusi Maimane, while the finance committee is chaired by the ANC’s Dr Joseph Maswanganyi. The minister can expect a rough ride from the committee.
Before the budget heads back to Parliament to be voted on, the DA will need to be persuaded to help pass the budget. Their opposition to the VAT increase is well recorded and they can argue, inside the GNU framework, for the bold economic reforms they believe will grow the economy.
Any further attempt to stall or upend the budget will be intransigent and anarchic, much like the EFF’s famous disruption of the State of the Nation Address in the previous Parliament. They have made their point and can use it to campaign in the next elections, reminding voters who stood up for them when an uncaring ANC sought to inflict pain.
Another possible resolution, which saves the ANC embarrassment, can come through the Parliamentary Budget Office. The PBO was established through the Money Bills Amendment Procedures & Related Matters Act, first passed in 2009 and amended in 2018. It allows Parliament to make amendments to both the fiscal stance and to individual allocations. The PBO can recommend ways to mitigate the VAT increase over the MTEF.
Maybe the PBO can act as a voice of reason to show parties why Godongwana had little choice but to raise VAT and remind them that the increase is not as steep as originally envisaged.
The ANC is no doubt wishing it can behave as it normally does in the country’s metros where it relies on smaller parties to support it in passing budgets. The parties comply and support all items tabled with the budget without question, leaving ratepayers and voters wondering what the point is of voting for an independent candidate or smaller party.
This time it will not work, and the ANC will need either the MK Party or the EFF to assist.
It’s going to be a rough few weeks ahead.
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