Former finance ministers call for fiscal funds to be found elsewhere

Former Finance Ministers Nhlanhla Nene and Malusi Gigaba have shed light on the unique political factors that contributed to the postponement of the national budget.

On Wednesday Finance Minister Enoch Godongwana was forced to delay the announcement of national budget until March 12 after the cabinet failed to agree on the measures he had proposed.

National Assembly speaker Thoko Didiza said the lack of consensus may have been linked to the two percentage point increase in VAT which Godongwana was expected to announce.

Gigaba said the postponement of the budget was an unprecedented situation.

"The international markets and ratings agencies would have been watching carefully how the first Government of National Unity's budget was going to look like. The postponement is a blow. The markets expect that all necessary steps would have been taken to ensure the budget is finalised on time and when it is to be presented there is sufficient consensus built around cabinet," he said.

Gigaba said his understanding from what he read in the speech that was not delivered, was that there was a huge shortfall and the minister would have wanted to find ways to ensure that the budget shortfall was addressed.

"If it is not addressed then it puts serious strain on the fiscal framework over the next three years. The minister would have wanted a safe and reliable revenue base that would assist to balance revenue and expenditure and ensure that over the next three years government is able to meet its financial obligations," he said.

Gigaba said the delay causes anxiety in the markets because if the basis is the rejection of the VAT increase then the minister would have to answer critical questions.

"Firstly what lever is the minister going to pull to fill the revenue shortfall? Whether that lever would have obtained sufficient consensus at government level and whether the budget itself will be presented?

He said the minister had to look at a new budget and find a new mechanism to fill in the R60 billion revenue shortfall. Where is that money is going to come from?

"The public will not accept an increase in VAT. We have just come out of a protracted inflation period and to go back to what is a regressive tax is going to be an enormous strain on public finance and the capacity on ordinary South Africans to cope with life is going to be strenuous, even if you introduce zero rated products.

"The minister must think afresh and creatively and come back with what will be generally accepted. The markets will be looking whether the coalition government supports the budget.

"I think there are other levers government can look at including lending money from the Central Bank. When government has a budget shortfall that it cannot fund in any other way including through tax then it has to borrow money. Borrowing money from the Reserve Bank is a cheap and affordable option and its something that should be considered. There are various options to be looked at and the VAT in my opinion should no longer be considered an option," said Gigaba.

Nene believes political order may have averted a disaster similar to what happened in other countries when taxes were increased.

He said it was the political environment that the country is in currently that resulted in the postponement of the budget.

He said he was not sure if 2% was an appropriate number.

Nene reflected on the missed opportunity for opposition parties, which could have leveraged the Money Bills Amendment Procedure and Related Matters Act to facilitate discussions regarding the budget instead of allowing its delay.

“What opposition parties missed was the opportunity to use a legislation that was passed in 2008 and later amended in 2018, the Money Bills Amendment Procedure and Related Matters Act, which gives parliament the third option to engage within the fiscal framework to amend the budget. They could have allowed for the budget to be tabled and then given that piece of legislation to be used," he said.

Traditionally, budget proposals are kept under wraps until their formal unveiling, a practice that Nene describes as crucial due to the sensitive nature of fiscal planning.

As budgeting practices extend over a three-year period, the latest medium-term budget policy was communicated to parliament last October, establishing a fiscal framework that the current budget is built upon.

While acknowledging the outcry against tax increases, Nene emphasised the dire predicament South Africa finds itself in regarding its ballooning national debt.

"No one would ever vote for an increase in any form of tax even though we have a ballooning debt that is reaching unsustainable levels. There is bound to be a way of raising the revenue," he stated.

He said the SARS commissioner had made a comment prior to this happening that rather than raising taxes he thinks he still needs to be given an opportunity to close the tax gap because only few pay tax, most people are out of the tax net and most others are not paying what is due from them.

Nene added that tax increases in other countries have caused serious problems.

"In Kenya it ended with a dissolution of government after the people took to the streets. Probably in South Africa we averted that with the political order kicking in and flexing its muscle," he said.

Nene said as the democracy matures there are bound to be rocky times.

Despite the current impasse, he conveyed optimism, stating, "It is in the manner it is handled that would mitigate a negative impact. The market also didn't over react to this because there was not much movement. There's only one item on the budget to be fixed and fixing it is not insurmountable.”

He added that the tax increase was coming with some concessions with regards to increasing the tax exempt basket and looking at other mitigating factors including the adjustment in the tax bracket and the postponement of some levy implementation.