Treasury did engage FFC on budget, insists deputy minister Sarupen

Deputy finance minister Ashor Sarupen has told parliament that the National Treasury consulted the Fiscal and Financial Commission (FFC) on the 2025 budget ahead of its tabling and provided the body with extensive documentation on its proposals.

Addressing parliament’s select committee on apportions on Wednesday morning, Sarupen — who is also an MP for the DA — found himself in the unenviable position of having to defend a budget on behalf of his department that his political party has rejected.

The 2025 budget has come under sharp scrutiny over its proposal to raise VAT (VAT) to increase revenue. This proposal was met with resistance at cabinet level, forcing a postponement of the budget from February to March.

FFC chair Patience Mbava told parliament last week that the Treasury had overlooked the commission on the division of revenue bill, an exercise which is required by law. She said the FFC did not have adequate opportunity to make inputs on the budget’s proposals for allocations between the spheres of government.

The February iteration of the budget proposed that VAT be increased from 15% to 17%. The March budget proposed an increase in VAT to 16% over two years. Even after the revised budget was tabled, the DA said it would reject any budget that proposed a VAT hike during a cost of living crisis.

Still, Sarupen told the committee the FFC was furnished with documents related to the budget’s proposal as far back as February when the budget was originally meant to be tabled.

“On the matter of the Fiscal and Financial Commission ... we did send documentation to the FFC on the 5th of February. We had an initial meeting on the 14th of February. Obviously the budget then changed and we attempted to have a consultation with them in March, but your point is well taken. The minister of finance and I will take this up and respond appropriately in writing.”

The head of the Treasury’s budget office, Edgar Sishi, told the committee that South Africa’s challenging fiscal realities pulled the country in different directions, with painful spending cuts, unsustainable borrowing and taxing for revenue being the only options left.

“[On the VAT hike] at the time of the 2024 MTBPS (medium-term budget policy statement), we indicated for the purpose of fiscal balances of the medium term and to ensure that debt becomes sustainable that spending reductions introduced in 2024 would have to be maintained,” he said.

“In addition to that we made the point that the government has a choice to retain spending cuts or, if it decides it can’t retain spending cuts and has to spend more money, that money should come from additional tax revenues.”

He said debt service costs were vastly outstripping the growth of the economy, leaving no room to service debt at current levels without additional revenue or spending cuts, or both.

The money had to come from somewhere, he said. He stressed that the Treasury was flexible and aware that many things can happen in a year, including better collections by Sars. That is why if additional revenue is secured, National Treasury can happily withdraw the VAT hike proposal.

“We’ve got a revenue mix. I know there is a lot of focus in the public on VAT, but there are a variety of proposals for this budget. VAT is indispensable in this set of proposals if revenues and debt levels do not significantly improve.”

The Treasury’s acting deputy director-general for public finance, Rendani Randela, told the committee that appropriations by main economic classification illustrated the competing spending priorities of the government.

He said the compensation of employees accounted for 18.38% of appropriations while 72.17% was accounted for in transfers and subsidies.

Spending additions were made for critical infrastructure, social protection, a higher-than-expected public service wage deal and critical frontline services.

EFF MP Mathapelo Siwisa said the complaint from the FFC was worrying. “We have rules to follow and we don’t want parliament taken to court over procedure. We look forward to the finance minister’s response,” she said.

ANC MP Cecilia Nxumalo said it was vital for the Treasury to have a clear sense of how the most vulnerable South African households will be affected by the VAT hike proposal.

DA MP Denis Ryder highlighted the concern surrounding Stats SA’s challenges relating to the accuracy of the 2022 census, which the Treasury did not rely on when drafting the budget and its scenarios.

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