Minister of Finance, Enoch Godongwana (far right), Deputy Ministers of Finance, Dr David Masondo (left) and Ashor Sarupen (middle front) walk to a lock-up media briefing to answer Budget questions from the media Photo: Kopano Tlape/ GCIS
Cabinet’s future talks about a 2% increase in VAT, a proposal by the government that was so politically sensitive it caused the National Budget to be postponed, cannot take place without considering what it is going to be replaced with, Finance Minister Enoch Godongwana said.
Speaking at a briefing after the postponement of the Budget on Wednesday until March 12, he said that given the funding and fiscal challenges facing the country, the Cabinet will need to decide how the country is going to come up with the additional funding required, either through increased borrowings, for which there was little scope, further government spending cuts, or increased taxation.
The Democratic Alliance (DA) on Wednesday took the lead in voicing its opposition to the proposed 2% increase in VAT that was contained in the Budget proposals. However, Minister in The Presidency Khumbudzo Ntshaveni said the delay was not due to the opposition to tax proposals by any one party, but was rather “a collective decision by the Cabinet.”
She said that it was “completely wrong” to think that the DA had forced the postponement, adding that even ANC ministers opposed the proposed increase.
Some political parties claimed that they had only known of the tax increase on Wednesday morning, hours ahead of the planned tabling of the Budget in Parliament. However, Godongwana said he had indicated to parties two weeks ago that tax increases were imminent, although in this meeting he had not disclosed the extent of the increase in VAT.
When questioned why the government did not get the Cabinet to approve the Budget earlier than only a few hours before its planned tabling, Godongwana explained that it is normal to receive Cabinet approval at this late stage to prevent market leaks of information, as the Budget contains market-sensitive information.
He said that the National Treasury was as surprised by the Cabinet's decision to postpone the Budget as everyone else, and that it was a good thing to have the Cabinet more intricately involved in the formulation of the Budget. He said a comprehensive review of the Budget process would take place, but not likely before March 12.
In response to a question about whether it would be better to raise corporate taxes rather than lift VAT, Godongwana said that the government was already not receiving sufficient tax from industry, because companies were struggling, making it difficult to raise the tax.
He also mentioned that companies often find ways to reduce taxes if these are raised, such as by relocating to countries with less taxation. Furthermore, he said that South Africa’s corporate tax levels are already far above those of other OECD countries.
“It means we are already uncompetitive,” he said. Raising corporate taxes would make South Africa even less competitive, which is the last thing the country needs given its high unemployment and economic circumstances, he said.
The VAT increase to 17% from 15% would possibly have raised an additional R58 billion in government revenue in its first year. This excludes zero-rated foodstuffs, the list of which was increased in the Budget proposals on Wednesday to help alleviate the impact of the VAT increase on lower-income groups.
It would have been the first VAT increase since 2018, and its proposed introduction had caught political parties, businesses, labour, and economists all by surprise.
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