By Simon Nare
Finance Minister Enoch Godongwana has stuck to his guns and gone with the unpopular decision of raising VAT by 0.5% percentage point this financial year, and another half percentage point next year to raise much-needed funds for the Budget.
Tabling his Budget speech in the National Assembly on Wednesday, Godongwana said he simply had no choice as borrowing more would further sink the country into debt.
He said the proposal would raise R28 billion in 2025/26 and another R14.5 billion in the 2026/27 financial year.
“This decision was not made lightly. No minister of finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power.
“We have, however, had to balance this knowledge against the very real, and pressing, service delivery needs that are vital to our developmental goals and which cannot be further postponed,” he said.
Godongwana was jeered by some MPs when he announced the VAT proposal. And as he started tabling the Budget, John Steenhuisen, who leads senior Government of National Unity partner, the Democratic Alliance, came out to say that his party would not support the Budget.
Without the support of the DA, it leaves the ANC in a pickle to get the necessary support for the Budget to pass in Parliament. It now has to go to parliamentary committees for debates and inputs before it comes back to the National Assembly for debates before it can be approved.
Steenhuisen said the DA rejected what he called the ANC’s budget. He also claimed it did not have majority support.
He said it was now up to the ANC to sort out the mess it had created.
Steenhuisen added that the ANC’s stubbornness to go ahead and propose the VAT hike showed that it refused to accept that it now shared power in governing the country.
He said his party had made it clear that in the GNU it would not support any increase in taxes unless they were temporary.
He added that the ANC had not agreed to a series of major reforms that would grow the economy, create jobs, reduce waste and bring down taxes within three years.
“The ANC refused to agree to these measures, and instead insisted on two likely permanent VAT increases, which cumulatively will increase VAT by 1% over the next two years. As a consequence, the people of South Africa will be poorer, and the future of the government is at risk.
“It is deeply unfortunate that the ANC is prepared to sacrifice the South African people and risk the economic future of the country rather than accept it no longer has majority support,” he said.
Godongwana said he had weighed all options at his disposal and this was the only sound one. He said he and his team had looked at trade-offs, including increasing corporate and personal income tax.
The minister said increasing corporate or personal income tax would generate less revenue while potentially harming investment, job creation and economic growth
“Furthermore, South Africa’s corporate income tax collections are already higher than most of our peer countries. On the other hand, an increase to the personal income tax rate would reduce taxpayers’ incentives to work and save,” he said.
He further argued against taking an additional loan to meet the spending pressures, saying the cost of borrowing would be unaffordable and the sub-investment credit rating would make it most costly.
“Madam Speaker, VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us extend the social wage,” he said.
INSIDE POLITICS