ANC ponders backing down on VAT hike

The ANC is expected to abandon its push for a Value Added Tax (VAT)increase in the upcoming budget, following intense opposition from its coalition partners in the Government of National Unity (GNU) and other political parties.

The decision comes after a series of meetings between the ANC and various parties, including the DA, where it became clear that there would be little to no support for the VAT hike.

The DA and ANC met on Saturday to discuss the ongoing budget impasse in South Africa with the aim of finding a solution to the country’s fiscal crisis and although both parties described the discussions as constructive, the DA remains resolute that it will not back a VAT hike.

The ANC was able to pass the budget in the National Assembly recently with the assistance of smaller parties in the GNU, including ActionSA and Build One South Africa (Bosa) after the DA and the Freedom Front Plus voted against the ANC's budget proposal. 

But ActionSA and BOSA were also adamant that they did not support a VAT hike and Finance Minister Enoch Godongwana had to find alternatives to contribute to the country's fiscus.

A senior ANC member who was part of the series of meetings with other parties, admitted that the party had failed to convince others to support the VAT hike, saying that all the parties vehemently opposed the VAT hike.

“If we are going to keep the GNU going and not alienate other organisations I think it's time we listen…we can't go at it on our own. It's time we realise that we are in the GNU with other parties that also have opinions. However they have to come up with solutions to the problems they bring.”

 The DA’s Federal Chairperson Helen Zille, in a statement after Saturday's meeting said that the two parties, which lead the GNU, held a constructive meeting.

“The engagement was productive, with both sides speaking respectfully and frankly about resolving the budget impasse,” Zille said.

She reiterated the DA’s opposition to the VAT increase, citing concerns about its impact on economic growth and job creation. 

She said despite their differences, both parties were committed to enhancing cooperation within the GNU.

ANC spokesperson Mahlengi Bhengu-Motsiri did not respond to questions.

With the VAT hike likely off the table, the ANC is now under pressure to find alternative ways to ease the government's revenue crisis.

The source said Godongwana will need to come up with a new plan to plug the R13,5 billion hole in the budget if the VAT increase is scrapped, saying this should happen before the end of the month because of the May 6 National Assembly meeting.

Congress of South African Trade Unions (Cosatu) spokesperson Matthew Parks, has welcomed the potential scrapping of the VAT hike, saying it would place a burden on millions of workers already struggling with the rising cost of living.

"We welcome the government and Parliament's endorsement of Cosatu's call for a progressive alternatives that will ensure the state has the resources it needs to deliver quality public services, stimulate the economy and tackle unemployment," Parks said.

“Time is of the urgency and this matter needs to be expedited and dealt with before the May 1 tax adjustments kick in, this includes taking the necessary legislative amendments before parliament to enable this to happen…Cosatu has made these proposals to the Treasury and Parliament as well as the ANC and will continue to engage them in a common sense and progressive solution,” Parks added.

Economist Duma Gqubule suggested that the government should consider an emergency budget, similar to that implemented during the Covid-19 pandemic. 

"The situation is dire, and we probably need an emergency budget... They must just do another budget," Gqubule said.

Political analyst Professor Ntsikelelo Breakfast believes the ANC's decision to back down on the VAT hike signals that the party has given in to the demands of the DA. 

"I'm not taken aback by the turn of events. I saw it coming, that the ANC and the DA will find each other," Breakfast said.

He added that he would not be surprised if the VAT hike will be shelved and the ANC's decision to convince other parties to back them despite their reservations over increasing VAT, was a mistake. 

“This signals that the ANC has given in to the demands of the DA because the DA, among others, has been vehemently opposed to a VAT increase.

“But what was the point of the ANC canvassing for other political parties to vote for the VAT? They could have just said that they were not going to implement it,” Breakfast said.

Another political analyst, Sandile Swana, described the VAT argument as "mischievous," saying the shortage in the fiscus (should the VAT hike remain as is) is "not a national crisis".

Swana suggested that the ANC approach the Unemployment Insurance Fund (UIF) for an interest-free facility to cover any shortfall in revenue collection.

Cape Argus