An announcement in the 2018 budget that South Africans will be paying more at tills in coming months did not go down well with many, despite it having been widely expected given a R48.2 billion revenue shortfall and the need to fund fee-free higher education for students from low income households.
While some political parties said a VAT hike was unavoidable and expected, Mmusi Maimane, leader of the biggest opposition party, Democratic Alliance, said it was still a difficult pill to swallow coming on the back of years of rampant corruption under the leadership of former President Jacob Zuma.
“No government can tax itself to prosperity,” said Maimane.
“The facts on the table are its going to be hard for poor people and it is a consequence of poor management over the last 9 years”.
Unions slammed the VAT increase for the impact it would have on the poor working class.
Zwelinzima Vavi, secretary general of the South African Federation of Trade Unions, went as far as describing Finance Minister Malusi Gigaba’s budget as an attack on the country’s poor.
“This is an onslaught on the workers now taken into the second gear,” Vavi said.
“We are absolutely very angry at the one percent increase in VAT. It is very regressive which punishes and hurts the poor more than anybody else.”
Gigaba told a press briefing shortly before he delivered his first main budget that he viewed the increase in VAT as the tax hike least likely to hurt the poor.
This sentiment was shared by the ruling African National Congress (ANC), which called the budget “tough but hopeful” and said there were measures in place to protect the poor from VAT increases.
“The exemption of basic necessities, including zero rated food items – and other necessities, shield the poorest of the poor from the potential regressive nature of the tax and introduce rather a more progressive and redistributive manner of raising revenue,” the party said.
“We further welcome the above-inflation increases in social grants, which once again affirms our commitment to a comprehensive social security net for the most vulnerable in our society.”
Freedom Front Plus leader Pieter Groenewald said a VAT increase was better than the alternatives.
“The one percent increase is a more fair distribution when it comes to tax. The basic foodstuffs will still be excluded,” said Groenewald.
United Democratic Movement MP Nqabayomzi Kwankwa said the budget speech was “anti-climactic” following inspiring words by President Cyril Ramaphosa over the past few days.
“We’re living in difficult times. Some tough choices needed to be made, we understand that,” said Kwankwa, however questioning the wisdom of not raising corporate taxes instead of VAT.
The African Christian Democratic Party (ACDP) said a VAT inrease would have been unnecessary if the country’s law enforcement agencies were equipped to recoup the billions of rand lost to corrupt networks of the politically connected.
“If they capacitate law enforcement agencies, they can recover the billions that have been stolen… through state capture and corruption,” ACDP MP Steve Swart said.
He said while there were some positives in the budget, they were overshadowed by the fact that poor South Africans would be paying for the damage done during Zuma’s tenure.
“What is positive with the new dispensation with President Cyril Ramaphosa is there has been an improvement in investor confidence, business confidence and that led to a reduced budget deficit,” he said.
The business sector said it understood that something needed to be done to raise revenue. Sentiment was largely positive.
The Chamber of Mines welcomed the diagnosis on the difficult state of the mining industry and Gigaba’s reinforcement of the commitment from the president in his State of the Nation address last week to allow parties the space to engage and address the policy and regulatory uncertainty that has afflicted the industry in recent years.
“The Chamber is looking forward to working with all stakeholders including government, organised labour and representatives of mining communities in formulating a social compact that will ensure the future sustainability of the industry and will allow the mining industry to achieve its full economic and transformational potential,” it said.
Cape Chamber of Commerce and Industry president Janine Myburgh said the budget reflected the price South Africans would pay for years of corruption, wasteful spending and low growth under Zuma.
“VAT and the other tax increases are going to hurt, but we really have no option but to deal with the damage and set the scene for some healthy growth in the future,” Myburgh said in a statement.
“Our VAT rates are low by international standards but very difficult to increase because of strong opposition from trade unions and others. However we are in a crisis situation and still in danger of a credit downgrade so it was the time for government to put the crisis to good use.”
The chamber however expressed concern at the proposed 22 cents a litre increase in general fuel levy and a 30 cents a litre hike in the Road Accident Fund (RAF) levy come April 4.
“Diesel is the fuel of industry and road transport. Heavy taxes on diesel have a far-reaching effect and increase food prices. Our rail system is in tatters and we desperately need to help public transport play a greater part in moving people and goods, both in cities and between Cities,” said Myburgh.
Opposition parties insisted Gigaba, who has been implicated in allegations of graft within the government and state companies, should now be fired.
The ANC and Gigaba himself, however, largely sidestepped questions on his future, both sticking to the line that ministers serve at the pleasure of the president.