Finance minister Enoch Godongwana’s proposal to increase the VAT by two percentage points to 17% is believed to have shocked his own comrades in the cabinet.
Some ANC ministers are believed to have warned that the decision could trigger a revolt that may result in the ANC-led government of national unity (GNU) removed from power.
For the first time since 1994, the finance minister could not table a budget after his proposals were rejected by his cabinet colleagues moments before he was due to deliver his speech in parliament on Wednesday afternoon. However, such stalemates are normal in mature democracies ruled by coalitions.
President Cyril Ramaphosa sought to reassure the public that cabinet would find a solution to the impasse through a statement released by his office on Wednesday evening.
[Ministers] told [Godongwana] that you are plunging us into a crisis as the ANC. You are essentially removing us from office.
— Cabinet insider
ANC officials are expected to meet on Thursday to discuss a way forward, and the party's chief whip Mdumiseni Ntuli is believed to have called a caucus meeting on the same day.
Even though Godongwana had briefed the ANC top officials — including Ramaphosa — about the VAT increases on Monday, it is believed that some of his cabinet colleagues heard about the proposed figures during Wednesday’s cabinet meeting.
Insiders say it was the ANC ministers who led the charge, expressing their opposition to the tax increases and warning Godongwana about the implications.
According to insiders, senior ministers such as Kgosientsho Ramokgopa (electricity), Mmamoloko Kubayi (justice), Gwede Mantashe (mineral resources and energy) and Pemmy Majodina (water and sanitation) opposed the proposal.
“The truth is people who spoke first were ANC ministers,” said a cabinet insider who asked to remain anonymous because cabinet discussion are confidential.
“They made an argument that this proposal doesn’t respond to what we discussed previously both in ANC and broader government, on the future of this country in terms of the high cost of living. They told [Godongwana] that you are plunging us into a crisis as the ANC. You are essentially removing us from office.”
Another insider indicated that Ramokgopa made “a compelling” case against the proposed controversial hike, warning against its impact on the economy, the inflation outlook and how these would affect the poor and working class communities.
“During the meeting, that thing was actually unpopular across the board.
“It’s just that these guys never want to be seen agreeing with the DA. But all of us need to show that we are all fighting for our different voters,” said the insider. All sources who attended the meeting told TimesLIVE Premium opposition to the tax increases came from all GNU partners — and not just the DA.
“All of us said no, we can’t continue with this. We ran out of time and said we’re not going to solve the problem before 2pm, and we took the option to postpone the budget speech.
“We heard this matter only today. All the deliberations we have had on the budget, this presentation on two percentage points was never made.
“We can’t just increase the VAT rate, I want to hear about austerity measures that we are going to take. We are against tax increases of any form, even personal or corporate tax. Godongwana must go back to the drawing board.”
Another leader said Godongwana was in a difficult position as all available options have consequences.
“There is no option that is sweet and that is what the DA will realise. You are going to piss someone off. This is the part of being in government, not in opposition ... What we need to realise is that there is no money.”
Look at the damage it is causing. It's now about the ANC and it's our minister who wants to punish our people.
— Insider
ANC secretary-general Fikile Mbalula told reporters on Wednesday that his party was “not entirely” in support of the VAT increase. He said there will be discussions on the way forward, including “doing away with the VAT option”. “Our borrowing capacity has been exhausted ... We need a balancing act to resolve the situation ... As the ANC we are of the view that if you are to consider VAT as an intervention, it must not affect zero-rated goods,” he said.
The budget has now been postponed to March 12 to allow further negotiations among parties in the GNU. Some insiders said nothing would change between now and the next budget day. “To be honest with you, I don’t see any other way.”
Briefing journalists on Tuesday, Godongwana warned that should the stalemate remain, only Ramaphosa had the final say.
Ramaphosa’s spokesperson Vincent Magwenya said a budget deadlock was a “result of disagreement but also collegial and mature consensus within cabinet” to rework budget proposals in the interest of the economy and citizens.
“We are called upon as the national leadership to pursue all initiatives aimed at growth for us to increase employment and alleviate the effects of poverty.
“The government of national unity will in the coming days and week intensify our efforts to balance the imperatives that drive the fundamental growth objectives of this administration with the realities of a constrained fiscal environment.
“We are working as partners to ensure the budget is one that works for individuals and investors alike.”
At a pre-budget briefing of high drama, South African Reserve Bank governor Lesetja Kganyago said the plan to hike VAT by %two percentage points was “unexpected” and a shock.
The government last increased VAT in 2018, from 14% to 15%.
“We treat a VAT increase as a shock in the forecast, it was not expected,” said Kganyago.
Just after 2pm, MPs were stunned when National Assembly speaker Thoko Didiza announced the postponement of the budget, with Godongwana absent in the chamber.
This was after Deputy President Paul Mashatile, in his capacity as leader of government business in parliament, informed her of the clash over the VAT hike and requested a new budget date.
This has left parties such as the EFF and the MK Party fuming, who both claimed this was evidence that the GNU was now dysfunctional, seven months after its formation.
DA leader John Steenhuisen said his party would not use the coming “trade-off” period. “Now is the time to replace a failed ANC VAT budget with a brand new GNU growth budget.”
Godongwana is expected to come under fire at the ANC caucus meeting on Thursday. A senior leader said the party’s caucus should have been taken into confidence. “How does such a thing happen without some kind of briefing?” he said.
“For instance look at the damage it is causing. It's now about the ANC and it's our minister who wants to punish our people,” said an insider.
“The opposition will have a field day ... The ANC is seen as the one implementing this thing. So the ANC must come out to say we don't support [this] so that we don't support consequences. Enoch knows very well he should have briefed the [ANC] economic transformation committee, Cosatu and the others. Enoch blindsided everyone.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.