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The ANC’s determination to push through the value added tax (VAT) hike at all costs, despite opposition from government of national unity (GNU) political partners, could risk alienating GNU allies.
This could potentially lead to the collapse of the GNU, experts warned yesterday.
According to reports, the ANC has thrown down the gauntlet to its GNU partner, the DA, over the stalled budget, warning that it would approach the EFF for the required votes if the DA refused accept a smaller VAT increase.
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In a view shared by many economists, the DA wants Finance Minister Enoch Godongwana to introduce substantial cuts in government spending to focus on job creation programmes when tabling the much-awaited 12 March budget.
Godongwana has taken flak from some ANC members, labour, organs of civil society and GNU partners for his initial plan to increase VAT by 2% – leading to the budget being postponed.
The cabinet has assigned Deputy President Paul Mashatile to convene a task team made up of ministers to consider viable options – expected to report back by today.
Political analyst Dr Sam Koma said the ANC was determined “to push through this tax hike, despite opposition from its GNU partners – the DA, IFP, Freedom Front Plus, UDM, PAC, Patriotic Alliance, Al Jama-ah, Good Party and Rise Mzansi”.
“The implications are that, if the ANC continues to play the Big Brother role, it risks alienating its GNU partners and potentially collapse the GNU,” said Koma.
He said the EFF was unlikely to endorse a VAT hike “something inimical to its propoor policy and ideological stance”.
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Koma lambasted as “incorrect” the ANC stance that the zero-rating of basic food stuffs would cushion the poor against the impact of a VAT increase.
“It is factually incorrect to confine the VAT tax hike to zero-rating of basic food stuffs.
“We know that the cost of living is measured by various variables, including but not limited to expenses incurred for food, transportation, energy, clothing, education, health care, child care and entertainment.
“Any VAT increase will have a domino effect on the various variables ruined factors,” said Koma.
ALSO READ: VAT hike rejected, but what’s the alternative?
Wits Business School economics professor Jannie Rossouw said, “At the moment, the approval of the budget is very fluid. “The EFF has also realised that its support is dwindling. “Any deal might be possible – it seems that no principles are any longer at stake.
“However, if such a deal is made and it leads the EFF into the GNU, I shudder to think about the size of the Cabinet and the number of deputy ministers.”
On the VAT increase and zero-rating of basic food stuff, Rossouw said an increase in the number of food items zero-rated would “alleviate the impact on the poor”.
Prof Raymond Parsons, of the North-West University Business School, said finding consensus on the amended budget remained “a big test of the GNU’s maturity, in reaching sensible fiscal trade-offs by 12 March”.
“Finding the right fiscal mix in an amended budget, including the 2% VAT hike, nonetheless remains a tough set of decisions.
“On the potential 2% VAT rise, the GNU needs to access the findings of the previous Davis Tax Committee (DTC) in 2018 on the best ways in which to soften the impact of a VAT rise.
“The net impact on taxpayers was well-quantified and can be adapted to current circumstances,” he said.
“The research work of the DTC also identified other options to an increase in VAT that might be considered.
“First prize for the GNU would therefore still be if it could agree on credible measures, such as spending cuts and better tax collections – avoiding another VAT rise,” said Parsons.
brians@citizen.co.za
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