Finance minister Enoch Godongwana on Monday painted a grim picture to cabinet of the implications of a zero-value added tax (VAT) increase.
Godongwana is believed to have given cabinet an overview of government projects that would either have to be halted or would be negatively affected if they insist on rejecting proposals to increase VAT by two percentage points.
This proposal was rejected by the cabinet at the eleventh hour last week, leading to the postponement of the budget speech in parliament. It has now been scheduled for March 12.
TimesLIVE Premium understands that Godongwana told the cabinet that a zero-VAT increase budget would affect critical government programmes such as the Covid-19 social relief of distress grant that President Cyril Ramaphosa wanted to extend. National Treasury had budgeted an additional R35.2bn for this programme running until March 2026 as well as R23.3bn for above-inflation increases to other social grants, including the child support grant, the old-age pension and foster-care grants.
Godongwana is said to have told cabinet that the schools nutrition programme, hiring of additional teachers and Ramaphosa’s early childhood development programme would also be negatively affected.
The cabinet would also have to come to terms with the defence budget not getting an adjustment.
“He wanted to give old age grants a R150 increase. So he was basically saying if you don’t agree to the [two percentage point] VAT increase, it means we will have to cut all of these,” said a cabinet insider.
“He didn’t present a new budget, he was showing us that if we continue rejecting his proposal these are the implications. It was a strategy for him to shake everyone.”
Godongwana is said to have told cabinet that their rejection of his proposal basically means he will have to present yet another austerity budget.
This is said to have been rejected, especially by the ANC leaders, who are said to have told Godongwana before the cabinet meeting that most of these cuts would hurt the ANC.
“We said it’s impossible, because an austerity budget will hurt the ANC more than the [two percentage point] VAT increase because it means welfare programmes and their budget will be affected, so we said no,” said an ANC caucus member.
The DA is said to have pushed for Godongwana to look into increasing the fuel levy, but this is said to have received a spirited pushback, especially from Ramaphosa.
Ramaphosa is believed to have proposed what is being referred to as a “middle ground” of having a VAT increase of between 0.5 and one percentage point.
“They told caucus that either a 0.5% or 1% VAT increase was more acceptable because taking it out altogether was impossible. The DA wanted the fuel levy increase but we refused and said this one directly affects our poor people because they live far from their workplaces and an increase in the fuel levy means an increase in transport costs,” said a government insider.
“Our middle ground is the 0.5 to 1% VAT increase, then we said he must go and look at housing bond taxes, taxing those earning upward of R800,000. We are suggesting those type of things, but we are not going to touch income tax. We will be taxing luxury goods because we are saying let’s look at the wealthy people first.”
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