National Treasury warned VAT hike won’t solve budget crisis

JOHANNESBURG - The National Treasury is being warned that a value-added tax (VAT) hike won’t solve the budget crisis as Minister of Finance Enoch Godongwana prepares to detail the country’s fiscal plans for the next three years.  

Tensions over a two percentage point increase in VAT put a pause on the February budget, with parties in the Government of National Unity (GNU) demanding a revision from treasury.  

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Some parties, unions, and economists believe a VAT increase should be a measure of last resort.  

Already facing pressure about how much VAT is enough to give National Treasury spending room without breaking consumers' backs, it is also facing criticism about a failure in foresight.  

“The issue is 15 years of spending more than we should have and not spending it on good things. We’ve spent it on things that have not been productive at all,” said the executive director of the Centre for Development and Enterprise, Ann Bernstein.  

“Too many low-impact programmes on the budget absorb resources without delivering meaningful outcomes. Too many people in leadership positions cannot do their jobs or spend money effectively. Too many public servants do not [or cannot] do their jobs. Too many failing SOEs are run inefficiently and continue to fail because they expect to be bailed out. Above all, there is too much corruption and elite looting of the state.”  

To break the budget deadlock, the Democratic Alliance (DA) is among parties that want government to agree to a spending review if Treasury goes ahead with a smaller VAT increase.  

Bernstein agreed that a review of inefficient expenditure is key to avoiding a similar crisis down the line. 

“It’s time to look at that very carefully and make fundamental cuts.”  

Already highly taxed, she believes raising VAT and other taxes will only lead to more tax evasion.  

“The Centre for Development and Enterprise has made a number of proposals to help in the crisis. These include proposals on how to reduce spending in the short term, funding the SA Revenue Service to find more money from tax evaders, opening new revenue streams that focus on reducing existing tax breaks for the better off, and introducing a pact - signed by all GNU partners - to speed up fundamental reforms for growth.”