Enoch Godongwana overplayed his hand - and nobody blinked

Finance ministers ooze a lot of power, and they know it.

The late Tito Mboweni had this aura about him, a swagger that said, “I’m not just the guardian of the fiscus but a powerful figure who can crash the rand just by sneezing.” 

They do not suffer fools gladly and are generally dismissive of fellow ministers, government officials or opposition figures who, in their opinion, do not have the grasp of macroeconomics and fiscal policy that they do. In a cabinet, finance ministers tend to respect the president; everyone else they educate. 

But if the president himself is prone to bending the rules, ethical finance ministers will hold their ground and protect the public purse at all costs, sometimes to the detriment of their own careers. Back in 2014, when Jacob Zuma took a lengthy medical timeout in Russia, he tried to sneak in a R1-trillion nuclear power deal with Rosatom. 

Nhlanhla Nene famously refused to sign it off, even under tremendous pressure from other ministers. A desperate Zuma tried to replace Nene with a puppet minister, Des van Rooyen, but that move lasted a weekend as agitated ANC leaders fought back. 

Everything comes to a standstill when the finance minister says “No”. 

Power can deceive finance ministers into believing they walk on water and can ram through economic or fiscal policy

The National Treasury is designed in a way that gives it the final say in money matters. A governing party can hold elective conferences and adopt infinite policies and resolutions — but if the Treasury says there’s no money, that is the end of it. Ask advocates of the basic income grant in the ANC just how frustrating it is to be told time and again that your populist concept is unaffordable.

However, all that power can deceive finance ministers into believing they walk on water and can ram through any economic or fiscal policy without pushback. This is what Enoch Godongwana thought when he tried to bulldoze through a two-percentage-point VAT hike on Wednesday.

Oh boy, did he miscalculate. The proposed VAT increase came as a shock to everyone. Officials and politicians who sit in pre-budget meetings were flabbergasted when they learnt of it. But no-one dares publicly oppose the minister.

It turns out everyone was against it. Even the commissioner of the South African Revenue Service, Edward Kieswetter — who would have been collecting the extra tax — did not back it.

Asked at a media conference what he made of Kieswetter’s warning at an Allan Gray webinar two weeks ago that tax increases “have reached an inflection point”, a visibly annoyed Godongwana said that when he read the comments in a Business Day article, he called the commissioner to ask him to explain. 

The minister then reminded journalists of the hierarchy. “What I do know is, there are different roles between the two of us. His role is tax administration, my role is tax policy. It’s quite important both of us keep to those two lanes.” 

A microphone gaffe broadcast a discussion between him, Treasury director-general Duncan Pieterse and minister in the Presidency Khumbudzo Ntshavheni that revealed Godongwana’s anger at Kieswetter.  His exasperation, though, was not directed just at the commissioner. Godongwana had spent the morning in a bruising cabinet meeting in which GNU partners and his own ANC comrades tore into his planned VAT increase.

He knew it was an unpalatable and unpopular move, so he kept it to himself up until the last minute and failed to consult. His excuse was that anything tax-related is market sensitive. 

The rest of the cabinet only found out there would be a VAT increase at a meeting on the eve of the state of the nation address, but even then Godongwana did not reveal the size of the hike. His colleagues had reservations but grudgingly gave the go-ahead when he assured them the basket of zero-rated goods would be expanded. 

On Monday, two days before budget day, the ANC top seven summoned him to brief them. The finance minister again presented the tough choices — cut spending; borrow more and smash the debt-to-GDP ceiling the Treasury has set; or increase taxes. He told them why he couldn’t touch personal income tax or corporate taxes and was again given a cautious go-ahead on the proviso that the zero-rated food basket would expand.

Godongwana admits he shared only “the direction of travel” on the tax increase at the February 5 meeting. On Wednesday morning, hours before he was to table the budget in parliament, he finally disclosed to the cabinet his true intentions.

All hell broke loose.

In the old days, when the ANC ruled alone, a debate would take place, disagreements would be aired, and everyone would eventually go along with the finance minister’s higher wisdom.

But not in the GNU. Having been dribbled three times by the ANC on controversial legislation, the DA was in no mood to be played again. It called Godongwana’s bluff and he was found wanting. 

Imagine his shock and discomfiture when his own ANC colleagues also vociferously objected to his VAT plan. Granted, the numbers don’t look good. Debt was supposed to stabilise at 75.5% of GDP in 2025 but will now peak 76.1% by 2026. With high debt comes high interest rates, something the Treasury has always warned of. Debt-service costs now consume 22c of every rand of revenue and are higher than what we spend on health and social services.

The VAT increase was designed to raise R58bn in financial 2026 to avoid the government having to go back to lenders or wield the axe on key programmes. 

In the Budget Review shared with journalists and economists on Wednesday morning, the Treasury argued against raising personal income taxes. This “is likely to be inefficient as taxpayers make adjustments to reduce their tax liabilities. Higher personal income tax rates would also reduce the incentive to work and save, with potentially larger negative impacts on the economy,” it said.

The document also dismissed hiking corporate tax. “Similarly, increases in the corporate tax rate are likely to impede competitiveness while generating less revenue than VAT.” 

This left VAT as the only option. The argument is that while VAT is a consumption tax, it is mostly paid by higher-income households because they consume more.

Ordinarily this would have ended the argument, and Godongwana would have announced to the nation that VAT was going up and then shrugged off the criticism like water off a duck’s back. But this time he overplayed his hand and got whacked hard. The minister’s usual stratagem of blinding colleagues with economic jargon to get their buy-in did not work. 

The budget speech has been moved to March 12 but he still will not get support for a VAT increase. Not even from his own party, let alone the GNU partners. Godongwana has been severely weakened and will forever be remembered as the first finance minister of the democratic era to fail to table a budget on time.