In the final years of apartheid rule, the National Treasury pulled off a sly manoeuvre that not only gave it a few more borrowed years, but also allowed those in power to line their pockets before they lost power. It is worth considering this history ahead of the imminent medium-term budget policy statement to be tabled in parliament on Wednesday.
In the 1980s, the government imposed a general sales tax (GST) on consumers. Similar to the current VAT system, GST was an indirect tax on an array of goods and services.
Despite being a regressive tax, GST was massively hiked in the final years of apartheid rule — from 7% in 1984 to 13% in 1989. Blaming international markets, trade sanctions and national security concerns, among other issues, the government forced citizens to cough up more in taxes.
State coffers filled up, and the revenue from GST more than doubled in a decade — from 14% in 1980 to 29% in 1990. State funds were used in nefarious and corrupt ways to keep the regime afloat — and for those in power to line their own pockets.
Prof Jonathan Hyslop of the Wits Institute for Social and Economic Research has argued that, in the decade from 1984 to 1994, “once it became clear that the end of white rule was at hand, there was a rush to grab as much in the way of spoils as possible before the curtain came down”.
Fast-forward to 2023 and there are strikingly similar early signs of such disingenuous manoeuvring.
In the lead-up to Wednesday’s medium-term budget, finance minister Enoch Godongwana has told all and sundry that the state is fast running out of money. Beyond cuts to service delivery, the minister has said the main challenge for the Treasury is how to raise an extra R42bn to cover the R350 Covid social relief of distress (SRD) grant, now adjusted for inflation to R365.
The likely remedy for this shortfall will be a VAT increase to 16% or 17%, up from 15%. This would raise an extra R24.5bn or R49.4bn respectively.
This approach seems counterintuitive, as VAT is a regressive tax. Though those with more money may pay more in real terms, they pay less as a percentage of their income. It is the poor who pay a far higher proportion of their income in VAT. Yet it is said that an increase in VAT will benefit the poor via the SRD grants.
Citizens need a respite from the pressure coming at them from all sides
— Mmusi Maimane, leader of Build One South Africa
There must be another way to provide relief to struggling South Africans. Citizens need a respite from the pressure coming at them from all sides. There are many options available to the minister of finance.
First, the numerous fuel levies — which make up a third of the total cost of a litre of petrol — must be cut. Doing this will reduce citizens’ transport costs and indirectly lower the cost of food.
Second, the minister should expand the list of untaxed zero-rated food items. With VAT likely to increase, this is a vital intervention for poor households that spend a disproportionate amount of their income on food.
A recent study by audit firm BDO South Africa found that poor households spend about 40% of their income on basic foods (as well as paraffin) that are on the zero-rated list, while for higher-income earners the figure is just 11%.
The zero-rated items list should be increased to 30 necessities, including white bread, cake flour, sanitary products, school uniforms, nappies, baby formula, bone-in poultry, peanut butter, soup powder, tea and coffee.
A 2018 report by independent experts recommended that the minister of finance make many of these items zero-rated.
Third, the finance minister must freeze the 31.4% electricity price increase scheduled for the medium term. Again, this is an unaffordable increase for poor households.
I am acutely aware of the government’s financial position. The finance minister has all but said state coffers are running dry. And the source of this is well known by all: the rank mismanagement of public funds and endemic corruption.
To make funds available to finance these relief measures, the government has many options. The finance minister could commit to selling all government shares in private companies, which are valued at hundreds of billions of rand. Alternatively, the minister could announce a downsizing of the cabinet, as well as cuts in VIP protection, travel and catering costs and other perks enjoyed by mayors, premiers, MECs and cabinet members. He could also take legal steps to recoup the billions of rand stolen through corruption.
South Africans are at breaking point. The minister of finance has the power to implement short-term interventions to assist our people.
• Maimane is the leader of Build One South Africa
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