'VAT increase cannot be interdicted': The decision's been made, says Godongwana
Finance Minister Enoch Godongwana has filed an answering affidavit in response to the legal bid by the DA and EFF to stop the implementation of a VAT hike.
Finance Minister Enoch Godongwana addressed a post-budget breakfast in Cape Town on 31 October 2024. Picture: @Treasury_RSA/X
The Money Show's Stephen Grootes is joined by Business Day columnist Sam Mkokeli and economist Azar Jammine from Econometrix.
A proposed 0.5 percentage point hike in value-added tax (VAT) hike is meant to come into effect in South Africa in two weeks time, on 1 May.
On Thursday, Finance Minister Enoch Godongwana responded to the court bid by the DA to have the implementation of the increase stopped. The EFF is the second respondent in the matter.
In his answering affidavit, Godongwana said 'my decision to introduce the VAT rate increase cannot be interdicted at this stage'.
He challenged the application on both legal and fiscal grounds, as well as parliamentary process.
The Minister reiterated that a delay in the increase in the VAT rate would leave a revenue shortfall 'due to a mismatch between the expenditure and funding elements of the fiscal framework'.
"The revenue shortfall would require higher borrowing in the short term to fund the additional expenditure that is included in the Budget. This would increase our debt-to-GDP ratio, leading to higher debt service costs that crowd out other expenditure."
Enoch Godongwana, Minister of Finance
Stephen Grootes asks Business Day columnist Sam Mkokeli whether he believes the increase will actually kick in on 1 May, despite opposition from most political parties.
It's highly likely, says Mkokeli, looking at the law as it's been detailed by the Finance Minister.
The practical reality faced by government in terms of the high level of public debt and rocketing debt service costs, is also a clincher.
"I remember when SAA needed to be saved it needed billions of rands - it was so hard to move money around; it's almost impossible at the end of the day."
Sam Mkokeli, Columnist - Business Day
"What the Minister is dealing with here is fiscal consolidation and the need to consolidate our public finances right now... The uncertainty that results from a long drawn-out process over 0.5 percentage points is going to affect the rand."
Sam Mkokeli, Columnist - Business Day
"We don't like it (a tax increase) but sometimes politics is so complex; it needs maturity, it needs grown-up people to take a direction with a decision now,decide there are bigger things to do."
Sam Mkokeli, Columnist - Business Day
Also weighing in is Econometrix chief economist Azar Jammine, who highlights that Godongwana would be correct here in terms of the ease with which he can be sure of raising additional money taking this route.
"However, the big issue is not whether a VAT increase is the right way to go - the real issue is, could the government not have found other areas to save money so as to avoid this."
Azar Jammine, Chief Economist - Econometrix
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