Godongwana’s humiliation was of his own making

It must be an embarrassing time to be finance minister Enoch Godongwana.

He spent the week at the IMF and World Bank spring meetings in Washington DC, the world’s biggest gathering of finance policy chiefs, central bank governors and other global financial players. Small talk with peers must have been most uncomfortable.

On Thursday a defiant Godongwana told Reuters on the sidelines of the IMF meeting that he was going nowhere. The night before, the Treasury had issued a terse statement announcing the withdrawal of his proposal to hike VAT to 15.5%. Godongwana had spent weeks trying to convince those who cared to listen that he had no option but to increase VAT if the fiscus was to collect the R75bn required to cover critical programmes in the next three years.

But the proposal hadn’t gone down well. The DA — the second-biggest party in the government of national unity — went to court to challenge it. Though it must be pointed out the blue party would have endorsed at least a 0.5 percentage point increase if the ANC had given in to some of its demands, including the devolution of passenger rail to the provinces and faster concession of ports to the private sector.

We are not sure if the Treasury will withdraw its opposition to the DA and EFF cases or seek an out-of-court settlement. But it could be in the best interests of democracy to let the courts clarify the finance minister’s powers in respect of tax legislation.

This is the first time in almost 31 years of democracy that a tax increase has been reversed, so we are in uncharted territory.

On top of that, there’s a parliamentary process to satisfy. The minister has taken the initial step. On Thursday he tabled the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, paving the way for the tax reversal.

He was warned from the beginning that a VAT hike would be unpalatable. It wasn’t just the public or political opponents who were up in arms — his own comrades in the ANC were among the first to rebel in cabinet when he initially mooted a two percentage point increase. Now he has egg on his face and the Treasury must once more crunch the numbers to plug the R75bn revenue shortfall.

To be fair to Godongwana, he is not the worst finance minister of the post-apartheid era. He has maintained the fiscal discipline of some of his more illustrious predecessors. The reason he was so insistent on VAT as a revenue raising tool was his dogged determination to maintain the fiscal consolidation line. This means reducing debt, narrowing the fiscal deficit by cutting unnecessary and wasteful expenditure and improving South Africa's credit standing. It is under his watch that the Treasury reported its first primary surplus in years.

The choice between slashing spending on critical items such as health, education and policing or borrowing more weighed heavily on him.

But as the tzar of the public purse he must come to grips with the fact that he’s a finance minister in a government where the dominant party, the ANC, enjoys barely 40% of electoral support. He doesn’t have the luxury of his predecessors who could ram through unpopular decisions knowing they had the backing of a parliamentary majority.

He should have consulted more, listened more and, realising his argument for a VAT hike was not holding sway, chosen a different route.