Godongwana to address G20 delegates in Washington after VAT hike U-turn

DURBAN - As Finance Minister Enoch Godongwana’s powers to adjust value-added tax (VAT) continue to be scrutinised, the country’s head of fiscal policy is set to address G20 delegates at a meeting in Washington DC on Thursday.

The G20 finance ministers and central bank governors will meet for a second time since South Africa’s G20 presidency at the end of last year.

They will discuss global economic challenges, financial stability and pro-growth policies.

The two-day meeting is happening on the sidelines of the International Monetary Fund (IMF) and World Bank spring meetings in the United States (US).

At the first meeting in Cape Town almost two months ago, G20 finance ministers and central bank governors mostly agreed on the need to address the debt crisis and the widening fiscal deficits.

Part of the ongoing G20 meetings include plans to address the tough fiscal space that a lot of countries find themselves in, especially the emerging economies.

Even in February, emerging economies were told by officials from the Washington-based lender - IMF - to strengthen their capacity to collect tax revenues and improve spending efficiencies, before proposing sweeping tax hikes.

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The IMF proposed making good use of existing resources instead.

At the time, the IMF’s managing director, Kristalina Georgieva, said: “Quality of public spending matters, not only for the wellbeing of the economy. It matters for creating public support among businesses and households for the need to contribute to the public purse. And let’s admit here that there is a lot of work to do in that area.

“Today, the public appetite [for tax hikes] is at historical lows and yet it is paramount to acknowledge and use the significant potential in developing countries to improve that capacity, enhance revenue mobilisation and strengthen the efficiency and use of these resources.”

A few hours after reversing the decision to increase VAT after facing political pressure, Godongwana will be back in front of the same officials to echo the same sentiments.

“The initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country’s constrained fiscal position.

“There are many suggestions, however, some of them would create greater negative consequences for growth and employment and some of them, while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase. The National Treasury will, however, consider these and other proposals as potential amendments in upcoming budgets as mechanisms to increase the resources available.”

Godongwana will be joined by the South African Reserve Bank governor - Lesetja Kganyago.