WeeklySA_AdminSTRAP: With divisions among comrades already sharpened over the proposed VAT increase, prospects of a greater chasm cannot be discounted…
By Ido Lekota
AS South Africans anxiously await the presentation of the national budget in parliament, it remains unclear to sense the mind of the Government of National Unity (GNU) on the matter.
Speculation is rife that the Treasury might likely opt for a smaller hike in a rescheduled budget to be presented on Wednesday, compared with its initially proposed 2 percentage-point increase.
That option would resolve an impasse within the coalition government over the planned VAT hike that caused an unprecedented postponement of the budget last month. The idea to impose Value-Added Tax (VAT) increase could be a tell-tale sign that the country is committed to the austerity route regardless of its possible negative impact on the South African majority’s livelihood. The proposed VAT increase has already agitated the trade union movement into action, unconvinced that the Treasury’s assertion that the hike was a necessary step to “balance fiscal sustainability”, was the way to go.
What is even more troubling is that this comes amid the cautious advice by South African Revenue Services commissioner Edward Kieswetter, who believes VAT increase would not be the most effective way to boost state revenue generation.
On the contrary, Kieswetter believes that improving tax collection efficiency is the most effective tool to overcome fiscal deficiency.
According to him, South Africa could collect over R460 billion in additional revenue if tax administration were more efficiently applied, with the figure possibly reaching R700 billion when a method to tighten on outstanding tax return is improved.
Kieswetter’s perspective on improving South African Revenue Services capabilities to recover uncollected taxes could be more beneficial than imposing a VAT increase, is supported by many, including the unions representing the working class.
The taxman rejects the VAT increase proposal, stating that this has the impact to affect low-income households, and that potentially this might trigger inflationary pressures.
Here are some of the factors weighing in favour of Kieswetter’s view on the matter:
· Improving tax collection efficiency can yield substantial revenue without the need for tax hikes. This approach targets uncollected taxes rather than increasing the burden on consumers.
· VAT increases are regressive, meaning they disproportionately affect low-income households who spend a larger portion of their income on essential goods. This could exacerbate poverty and inequality. A VAT increase could lead to higher inflation, prompting further interest hikes by the South African Reserve Bank, which would compound financial distress for households and small businesses. Other measures such as wealth taxes, stricter exchange controls, and combating illicit financial flows could provide significant revenue without harming low-income households.
Gleaning from the private discussions between Finance Minister Enoch Godongwana and Minister in the Presidency Khumbudzo Ntshaveni after the announced postponement of the budget presentation in Parliament, it appeared Kieswetter’s view did not enjoy support within the ANC.
As it is, the VAT increase as an alternative revenue mechanism is typical of the government’s economic austerity model which promotes decreased public spending – despite the country’s claim to be a developmental state.
The justification has been that the country has a high debt ratio and instead of borrowing more money from international financial institutions like the World Bank – it should cut down on public spending – by so doing underfunding the much-needed social services in a country with such massive historical socio-economic inequalities.
The effect of the austerity-driven policies has resulted in high unemployment rate, deepening poverty and reduced social cohesion.
The question is why, for example, in a country with a rich legacy of the fight against economic and political exclusion of its majority the government of the day adopts policies bound to undermine that legacy? As it is, South Africa remains entrenched in austerity-driven policies due to a combination of historical fiscal challenges, structural economic issues, and a focus on stabilising public debt.
This approach has been characterised by significant government spending cuts and a commitment to fiscal prudence, which many economists argue have stifled growth and exacerbated inequality.
Some of the reasons for the country sticking to austerity policies include public debt concerns. To this end, the South African government has prioritised stabilising public debt levels, which have been rising due to persistent budget deficits.
This focus on fiscal consolidation is seen as necessary to maintain investor confidence and avoid a credit downgrade.
* Ido Lekota is an independent political journalist
