Finance minister Enoch Godongwana finally has his budget, after the first two iterations triggered a political row over a proposed VAT increase.
Those fiercely opposed to the VAT hike included the DA, the second biggest party in the government of national unity. Godongwana couldn’t get his way even after reducing the initial quantum from a two percentage point hike to two 0.5 percentage point increases over two fiscal years.
The National Treasury had promised to expand the zero-rated basket to include more food items, such as offal, but the consensus among most commentators was that a VAT increase would hurt the poor the most.
South Africans must be careful what they wish for
On Wednesday Godongwana conceded that the decision to keep VAT at 15% “reflects our commitment to listen to South Africans, and to all the political parties represented in this house”.
To make up for the revenue shortfall, the minister has opted to raise the fuel levy for the first time in three years. From June 4, the general fuel levy will increase by 16c a litre for petrol and 15c cents a litre for diesel. But there is still a R20bn revenue shortfall to plug.
A fuel levy increase should not be celebrated, though. There will be a knock-on effect when producers and transport providers pass this extra cost on to the consumer.
The Road Freight Association warns that the move will have far-reaching consequences, as it raises the cost of transport and constrains the country’s logistics sector, 85% of which runs on road freight.
South Africans must be careful what they wish for.
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