The ANC is likely to drop its insistence on a VAT hike in this year’s budget, amid indications that none of the parties it held talks with this week would support it.
The U-turn comes after the DA, the ANC’s main partner in the government of national unity (GNU), first raised its objections when finance minister Enoch Godongwana proposed a two percentage point VAT increase in February.
That figure has been whittled down to two increases of 0.5 percentage points over two years — but it appears even this will not pass.
The uncertainty around the VAT hike could cause chaos and confusion because service providers began invoicing for VAT at the 15.5% rate after parliament approved the fiscal framework at the beginning of the month.
The new rate was due to take effect on May 1, but it now appears the decision could be reversed, if Godongwana assents and a majority in the National Assembly supports the move.
The VAT issue has pushed the GNU to the brink, with senior ANC leaders including President Cyril Ramaphosa and Deputy President Paul Mashatile saying the DA’s vote against the budget meant it had “defined itself out of the GNU”.
For now, at least, it appears the GNU will remain intact amid a new scramble to find an alternative way to ease the government’s revenue crisis. Scrapping the planned VAT hike will leave a R13.5bn hole in the budget.
Sources told the Sunday Times that the final nail in the coffin of the VAT increase came during a meeting between ANC and DA delegations yesterday.
A senior ANC leader said it had become clear from marathon meetings with parties represented in parliament this week that there would be zero support for the budget if it included a VAT hike during the final stages of its approval in parliament in the coming months.
“The VAT thing, including even in the ANC and everybody else, is not going to pass. The increase in VAT is not going to pass,” the ANC leader said. “The minister of finance is under pressure now to ... kick it into touch or take it out completely. That is where things are now.”
From the political parties that we have met, he [Godongwana] is under pressure to find an alternative to the VAT increase. In the bigger scheme, [R13bn] is nothing. He must find it
— ANC source
Another senior ANC source with knowledge of the budget negotiations said the focus was now on whether Godongwana and the Treasury were able to come up with an alternative before the end of the month.
“The debate now is on what is happening on May 1, [because] what will happen on May 1 will determine what happens on May 6.” The budget’s appropriations are meant to be adopted by the National Assembly on May 6.
Those familiar with the discussions said it would take a “political solution” for the increase to be scrapped in light of Godongwana’s determination to implement it. He has pushed for it even in the face of opposition from some of his own party colleagues.
The DA’s federal chair Helen Zille said her party had remained steadfast in opposing the increase during the meeting with the ANC yesterday. But the DA was still committed to making the GNU work.
“It was a fruitful meeting in which we spoke very frankly around the issues that had led to the budget impasse. The DA reiterated its opposition to a VAT increase, particularly in the absence of any meaningful reform plan that will lead to economic growth and more jobs being created,” she said.
“We agreed that it was very important to have mechanisms whereby these issues can be resolved timeously and that the mechanisms of the foundational statement of intent need to be built upon to make the GNU work more functionally. We did not reach the issue of dismantling the GNU. We repeated our opposition to the VAT increase.”
The ANC sources said DA participants in the talks yesterday stressed they had not voted against the entire budget, but against the fiscal framework, and that the “real budget vote” would be on May 6.
“They are saying they did not vote against the budget, the budget is coming on May 6, they voted against the framework because part of that framework includes the VAT thing which they are [still opposed to],” a senior party leader said.
This source indicated Godongwana and the Treasury should be able to find the R13bn elsewhere without hurting spending priorities because it was “not a lot” of money.
One of the projects that the ANC says Godongwana should not touch is the social relief of distress (SRD) grant.
“There is nobody who says VAT is the answer, the only thing is where are the alternatives, where are you going to get the R13bn? So there is a big search for alternatives. That is where things are,” this source said. “From the political parties that we have met, he [Godongwana] is under pressure to find an alternative to the VAT increase. In the bigger scheme, [R13bn] is nothing. He must find it.”
The ANC went into these negotiations already disagreeing with the VAT increase, saying let us look at the revenue side of the budget in order to offset the VAT increase
— Mahlengi Bhengu-Motsiri, ANC spokesperson
But one senior ANC leader took a different view, saying there was no appetite to relook at the fiscal framework to remove the VAT increase. This leader said ActionSA, which is not in the GNU but agreed to support the budget if the VAT hike was rescinded, was sticking to this position — but the other smaller parties had made peace with it.
“The VAT increase is going ahead. That train has left the station. The only people we are having a conversation about the reversal of this thing is ActionSA, everyone else has accepted that it’s going ahead,” said the party leader.
“And what we are saying to ActionSA is ‘come and join us in the GNU, leave this VAT to go through, we’ll work together in the GNU to make sure that the second 0.5 percentage points does not get implemented’. We are saying to them come in and get positions as ministers or deputies and then work to ensure this is the only VAT increase.”
This leader said the ANC had been clear in its meetings this week that it was committed to closer scrutiny of government spending and growing the economy. “VAT can’t be reversed right now because the fiscal framework is gone, it has been passed, and it was passed on the basis that it includes a VAT increase,” this person said.
ANC spokesperson Mahlengi Bhengu-Motsiri said it had always been the ANC’s view that VAT should not be raised.
“The ANC went into these negotiations already disagreeing with the VAT increase, saying let us look at the revenue side of the budget in order to offset the VAT increase,” she said.
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