John Matisonn: Godongwana’s VAT U-turn - What the climb-down reveals about SA’s fiscal politics

Key topicsGodongwana withdraws planned 0.5 % VAT hike after legal pressureTreasury to revise budget bills, seek R13.5 bn via spending cuts & SARSDebate shifts to alternative savings: wage bill, VIP perks, richer tax net.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By John Matisonn.Listen to this story instead:.Finance Minister Enoch Godongwana has backed down on his 0.5% VAT increase, ending the court standoff with the DA and extended negotiations with other political parties. In a series of communications starting at 10pm last night, the ANC announced a media briefing for 10am Thursday to withdraw the VAT increase, then an hour later DA’s Helen Zille confirmed the Finance Minister’s lawyers had approached her to settle their court case over it, and at 15 minutes past midnight the Treasury announced an amendment will be brought to Parliament to implement it.The Treasury statement said that the Finance Minister “is withdrawing the Appropriation Bill and the Division of Revenue Bill, in order to propose expenditure adjustments to cover this shortfall in revenue…“To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward. The Minister of Finance expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks.”This brings to a close a major chapter in an extraordinary saga since the remaining disputed 0.5% increase represented only R13.5billion, a relatively modest sum in a R2trillion budget, that could be found by any number of small cuts or improved tax collection. From the Treasury statement it appears that details of how the money will be recouped is not yet decided. Other political parties have proposed numerous cuts that would have minimal negative effect on people’s lives.Any voter watching unrecognised politicians whiz by with flashing blue lights and a retinue of luxury escort vehicles knows there is fat to be cut from the national budget. Yet, amid massive damage to the ANC brand showing up in opinion polls, the ANC was willing to go to the mat to avoid finding just R13.5 billion to prevent a controversial VAT increase that is political kryptonite.Perhaps the most important question of all is why? It can’t be because a few cuts that do no significant damage – and may even do good -- can’t be found.Multiple savings have been proposed, by opposition politicians and economists. On Tuesday Judge Dennis Davis pointed out that 188,000 people earning more than R1million a year are not registered taxpayers. Hiring staff to chase them would pay off.While the DA and EFF were in court fighting the increase, Judge Davis, former chairperson of the Davis tax commission, was at the Kelvin Grove club telling the Cape Town Press Club that someone he had worked with conducted an experiment..Read more:.VAT freeze triggers budget reboot.She went to the Alphen Hotel during a Sunday morning Ferrari get together, photographed the number plates, and on checking found none of the Ferrari owners earned more than R400,000 pa.Finance Minister Enoch Godongwana has increased the SARS budget, but not enough. A bigger increase to focus on finding them would pay dividends.The DA and EFF court action that began on Tuesday would have determined if the 0.5% increase was legal. The dispute in the case rested on the interpretation of a couple of sentences.Godongwana pointed to a clause requiring the Finance Minister to announce the VAT amount in Parliament, but the DA argued that the law also requires it be voted on in Parliament. So, must the Minister get it voted on as well as announce it?Opposition parties offered lists of options for cutting what is a small amount from the R2trillion budget. The DA proposed cuts in government advertising, travel and catering, a hiring freeze and an audit of ghost workers.Other proposals require reviews, though in many cases the Treasury has already done them. ActionSA proposed what it said was savings of R100billion, and BOSA R180million. Until last night, the Minister rejected all these ideas.“If I had alternatives to the 0.5%, I would be second guessing my fiscal framework,” the minister told eNCA. “I presented a fiscal framework, and I am confident that I would not have presented it if I had alternatives.”Several parties want the Employment Tax Incentive scrapped, saving R7billion. Some want government to sell state-owned assets, including state owned enterprises (SOEs), a freeze on hiring and closing some diplomatic missions. The DA’s Dr Mark Burke sees R10billion being realised from selling land and assets.BOSA sees R2billion from cutting VIP protection to 67 politicians, leaving only the president and deputy president. Abolishing deputy ministers would save R500million.Since public sector wage increases exceed inflation, many want the wage bill reviewed, a speed up in commission private firms to run ports and rail routes. Clearly, a comprehensive review of all budget spending is necessary.Parliament’s next budget vote is scheduled for May 6. As a retired judge, Davis declined to discuss the political question of why this small amount could not be found, but he did comment on the benefits of different proposed cuts. He questioned how much could be realised from a wealth tax, since there is no data on what wealth is available to be taxed. Such a tax would have to be a percentage of passive income. A small wealth tax would produce little reward, and a larger one would change the investment behaviour of the wealthy.Since public sector wage increases are higher than the international average, he did see value in reviewing the wage bill. But like others, he pointed to the necessity for economic growth.“In the long term, you can’t forever buy social solidarity with social grants,” he said. The government’s ability to afford them is declining, and a healthy society requires that everyone enjoy the dignity of work.

John Matisonn: Godongwana’s VAT U-turn - What the climb-down reveals about SA’s fiscal politics

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