The ANC was never married to a VAT increase and they supported it because the government needed to raise revenue to fund some of its critical programmes.
Several senior ANC leaders told TimesLIVE Premium on Tuesday that every other option at its disposal would not have raised enough revenue to cover all government’s spending programmes.
“The issue was not that we have to raise VAT at all costs, the issue was that we have to raise revenue for this year,” said a senior ANC leader.
“We looked at everything and, in our view, we couldn't stop anything because it was going to deal with critical issues such as transformation, and we needed the money to fund our social programmes including education, health and others.”
The ANC is now ready to forgo the contested 0.5 percentage point VAT hike after what insiders described as “constructive meetings” with ActionSA and other parties.
It was only after meetings on Monday and Tuesday with several parties, including ActionSA, that more options became available.
These options include giving National Treasury time to look at what they consider non-critical programmes that would plug a hole in the budget to avoid the VAT increase.
This comes after the ANC, with the support of the IFP and other smaller parties, supported a motion from ActionSA to put a 0.5 percentage point VAT increase on hold while Treasury is given 30 days to revise its budget.
Part of the agreement is that finance minister Enoch Godongwana would gazette delaying the implementation date of the VAT increase as Treasury identifies spending cuts.
One of the proposals is to look at cutting down allocations to the National Empowerment Fund (NEF), which received R20bn last year. The NEF is said to have only used R3bn of this R20bn, with the ANC, ActionSA and Bosa saying this is one of the cuts government could make.
ANC leaders said if the 0.5 percentage point VAT increase was only going to add about R24bn to the fiscus, then National Treasury could allocate only R3bn to the NEF, leaving it with R17bn that would go a long way in covering the R24bn that VAT would have added.
“We are still checking, but if indeed they were not able to spend it, it means R17bn had to go back to the National Treasury. This year we have allocated them another R20bn. Why don’t we delay this allocation to them and take that money to fund critical programmes that the VAT revenue would have funded?” said a senior ANC leader with knowledge of the negotiations.
This delay in allocating money to such programmes for a year would then be corrected once revenue starts coming in from Sars.
The delay in the implementation of VAT would also give Sars time to use the additional R3bn allocated by Godongwana to capacitate its revenue collection. Sars had said that with more money it could collect an additional R800bn.
The ANC was able to push the budget, or the adoption of the fiscal framework and tax proposals report, through at the finance committee on Tuesday with the help of ActionSA and the IFP.
This was after the ANC entered into an agreement with ActionSA that Godongwana would delay the implementation of the VAT increase to give National Treasury a chance to look at where it can make cuts.
“We were able to push it through with the help of ActionSA and the IFP. So it passed as is, but we put the condition that we must look for other avenues to generate revenue. So we are not amending the budget,” said a senior ANC insider.
“If things go well tomorrow, without the DA, EFF and MK, but with other smaller parties, we have 203, so we can pass it without them.
“We are happy with ActionSA and others because they are raising principal issues that have to do mainly with the budget. Not what the DA was doing. So we are really appreciative of how they approached these talks. They confined themselves to the budget and not party interests like the DA but the interests of the country.
“They were so cordial and didn’t have demands. This made it easy for us to say OK we hear you and you are making sense. Let’s give the minister a chance to look for other avenues.”
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