Finance minister Enoch Godongwana has rubbished assertions that reviewing government spending will automatically result in savings for the fiscus.
Briefing parliament on Friday, he said that while one spending review had shown the government was paying 45% above market prices for office rentals, cancelling these lease agreements was not easy.
“Spending reviews require a couple of things because it requires political heads — once they are aware of what has been produced — to begin to act [appropriately]. But some of them will take time to implement.
“Would that spending review, if [we] deal with it effectively, give us money in the next three months? The answer is no. The first thing is capability. It’s going to face resistance because it may [very] well [end] up in court ...
It’s going to take ... time. So what I’m trying to say is: to put all our eggs in what we call spending reviews that will give us money in the next three months is not as easy as people are saying.
— Finance minister Enoch Godongwana to joint meeting of parliament’s standing and select committees on finance
“It’s going to take ... time. So what I’m trying to say is: to put all our eggs in what we call spending reviews that will give us money in the next three months, is not as easy as people are saying,” he told a joint meeting of parliament’s standing and select committees on finance on Friday.
In its rejection of a two-percentage-point VAT hike in the postponed February budget, the DA proposed a comprehensive spending review which the party said could result in savings of up to R58bn.
It said this would allow for the reallocation of funds to essential public services and other critical spending areas.
The revised budget tabled in March proposes two 0.5 percentage point increases to VAT in the next two years, the first of which will come into force in May if parliament approves the budget.
But Godongwana said if the government took the spending review on inflated rental rates and acted on it, this did not mean that those savings would immediately be available for spending.
He said even if savings were derived from the withdrawal of South African forces from the Democratic Republic of the Congo (DRC), this would not automatically move money away from the department of defence, as it has been underfunded for years, losing up to R47bn between 2008 and 2023 in base erosion.
Parliament’s two finance committees heard from the Treasury and the South African Revenue Service as MPs prepare for a crucial vote on whether to support the fiscal framework anchoring the budget. If the GNU partners don’t find each other and agree to a last-minute deal, it could result in an unprecedented rejection of the budget, triggering a fiscal crisis across all spheres of government.
Treasury director-general Duncan Pieterse said in the 2024 medium-term budget review they announced a fiscal framework for the following three years where none of the spending pressures that existed in the system, including education and health, were catered for.
“As a result of all of this, there’s an increase in non-interest expenditure of R142bn, and the size of the expenditure increase has implications for revenue choices of the efficiency and equity of those choices.”
Head of tax and financial sector policy at the Treasury, Chris Axelson, said the 0.5 percentage point VAT increases proposed for 2025/26 and 2026/27 were meant to raise R13.5bn and R15.5bn, respectively.
“There are inflationary increases assumed in the following two years, but the numbers that are reflected there show the revenue that flows through to the outer years. So, we do assume there is relief for inflation in the next two years.”
Edgar Sishi, head of the budget office, said the revenue proposals contained in the budget sought to fund infrastructure investment for growth, with public infrastructure getting R46.7bn over the medium term.
“In addition to that, we did indicate in the budget that we are continuing to strengthen the budget process. But of course, given the ... postponement of the budget, there is more work that needs to be done in that regard, and we are committed to that.”
Sars Commissioner Edward Kieswetter said the budget’s R7bn allocation proposal for service showed that the tax agency should be seen as an investment centre rather than a cost centre.
“By our own estimates, the current underfunding of Sars is at least R3bn for the current year and R12bn for the MTEF [medium-term expenditure framework]. We would make the plea that very quickly we restore the cost-revenue ratio of Sars to at least 1% and when we have a high investment period, even as high as 1.2%.”
He said underfunding at Sars affected interventions against proliferation and financial crime, intelligence and forensics, investments in innovation, large-scale base erosion and profit shifting, and efficiencies in customs transparency.
Cosatu parliamentary liaison officer Matthew Parks praised “progressive provisions” in the budget but was “deeply dismayed” by the VAT hike and the failure to adjust income tax brackets that he said would inflict unnecessary pain on working-class families and the economy.
DA MP Mathew Cuthbert said his party still strongly opposed a VAT increase and proposed expenditure reprioritisation in government departments to free up billions, amending expenditure on non-essential programmes, and cutting waste.
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