CAPE TOWN – Finance Minister Enoch Godongwana's budget speech was unceremoniously cancelled last week after the Democratic Alliance (DA), a key partner in the Government of National Unity (GNU), vehemently opposed his proposal to increase Value Added Tax (VAT).
This dramatic turn of events, pieced together from conversations with informed government and party sources, reveals a behind-the-scenes power struggle and raises questions about the future of the GNU.
The DA's repeated warnings against a VAT increase were seemingly ignored by Godongwana, culminating in a pivotal phone call from DA leader and Minister of Agriculture, John Steenhuisen, to President Cyril Ramaphosa on Wednesday morning. This call, following a meeting of GNU party leaders, proved to be the final nail in the coffin for the budget speech.
Steenhuisen personally informed Ramaphosa that the DA rejected the budget due to Godongwana's unilateral decision to increase VAT by two percentage points to 17%. As the second-largest coalition partner in the GNU, the DA is the only party capable of providing the ANC with sufficient support to pass the budget.
The prospect of a VAT increase first emerged approximately three weeks prior to the cancellation, shortly after the ANC lekgotla held from 26 to 28 January, according to a government source. While it remains unclear whether the VAT increase was formally discussed at the lekgotla, the Treasury reportedly aimed to utilise the additional revenue to address a R60 billion shortfall.
This funding gap was intended to finance various critical areas, including salary increases for civil servants, repairs to passenger train infrastructure, the retention of teaching positions, the appointment of more preschool teachers, and the funding of social grants.
At a special Cabinet meeting on 5 February, the Treasury reportedly hinted at the potential need for a VAT increase during its presentation. According to one Cabinet member, the Treasury suggested that "VAT might be too low" and that difficult decisions would be required to either cut government spending or increase taxes. These sources spoke on condition of anonymity due to the confidential nature of Cabinet meetings.
DA sources indicate that Ashor Sarupen, the DA's deputy minister of finance, contacted Godongwana on 6 February to convey the DA's opposition to a VAT increase. This prompted Godongwana to arrange a meeting with the DA leadership on 7 February.
During this meeting, the DA unequivocally stated its rejection of a VAT increase and presented several counter-proposals for alternative cost-cutting measures. The DA argued that it would be unjust to extract R60 billion from ordinary South Africans to cover the state's salary bill.
A DA source familiar with the discussions stated: "Our alternative was that more debt, more taxes and more cuts are not the only options. The option we prefer is to stimulate economic growth with reforms such as urgent concessions for ports and railways, which will increase exports, create more jobs and then bring in more tax revenue without raising rates."
The source further emphasised the need for "an urgent review of government expenditure to make specific cuts from programmes that are not working and to channel resources to Sars [the SA Revenue Service]."
Following this meeting, communication between Godongwana and the DA reportedly ceased. According to one DA source, Sarupen was sidelined and excluded from subsequent budget discussions.
DA leaders reportedly made informal contact with Godongwana again last week to reiterate their opposition to the VAT increase. Godongwana allegedly responded nonchalantly, suggesting that this stance could potentially lead to the collapse of the GNU.
A draft version of Godongwana's budget speech, circulated among Treasury officials last Thursday (13 February), revealed for the first time the minister's intention to raise VAT by two percentage points.
Simultaneously, Godongwana initiated consultations with the ANC's top seven leadership and its alliance partners, the SACP and trade union Cosatu, regarding the VAT increase.
Sources indicate that both of Godongwana's deputy ministers, Sarupen and the ANC's David Masondo, voiced their objections to the VAT increase. Cosatu subsequently issued the first public statement on Friday (14 February), raising concerns about the proposed increase.
On Sunday, the Sunday Times reported on the potential VAT increase, prompting Mark Burke, DA MP and spokesperson on finance, to issue a statement declaring the party's opposition.
Godongwana briefed the ANC's national working committee (NWC), which manages the party's day-to-day operations, on his budget on Monday. While some NWC members reportedly expressed dissatisfaction with the VAT increase, the budget ultimately received the party's support.
The NWC includes senior Cabinet members such as International Relations Minister Ronald Lamola, Justice Minister Mmamoloko Kubayi, Police Minister Senzo Mchunu, Water and Sanitation Minister Pemmy Majodina, and Minister in the Presidency Khumbudzo Ntshavheni, in addition to the top seven ANC leaders.
Despite Cosatu's opposition and the DA's repeated warnings, there was reportedly no further communication between Godongwana and other GNU partners regarding his budget until Tuesday.
On Wednesday morning, at a virtual meeting of GNU party leaders, Steenhuisen reiterated the DA's firm opposition to the budget with the VAT increase. Other party leaders also voiced their concerns but indicated that they would support the budget "conditionally," according to sources.
Following the meeting, Steenhuisen contacted President Ramaphosa. Shortly thereafter, the DA issued a media notice announcing Steenhuisen's intention to communicate the party's "resolute position" on the budget after the official announcement. This notice, coupled with Steenhuisen's call to Ramaphosa, caused considerable unease within ANC circles.
At 12pm on Wednesday, just two hours before Godongwana was scheduled to deliver his budget speech, the Cabinet was presented with the full budget for the first time.
By this point, opposition to Godongwana's plan had gained significant momentum. ANC ministers such as Lamola, Kubayi, and Electricity Minister Kgosientsho Ramokgopa began to rally against the VAT increase. Leaders of other parties also voiced strong objections, with Steenhuisen again leading the charge.
Gayton McKenzie, leader of the Patriotic Alliance (PA) and Minister of Sport, Arts and Culture, praised Steenhuisen's stance in Business Day, describing his argument as "brilliant" and possibly the best he had seen from him.
Shortly thereafter, the chief whips of the parties in the National Assembly convened and requested that the Speaker, Thoko Didiza, postpone the budget speech to 12 March.
DA government sources suggest that Godongwana and the ANC miscalculated by failing to consult adequately with GNU partners beforehand.
One DA source commented: "They thought they would, as usual, inform the Cabinet two hours before the time about what the Treasury and the ANC had already decided beforehand."
The source further criticised the ANC for "repeatedly undermining us and the other GNU partners with issues like the Bela [Basic Education Laws Amendment] Act and the Expropriation Bill. These were their little bombs on us from the previous administration. But, on Wednesday, they encountered our nuclear bomb: support in Parliament."
Another DA government source remarked that the DA and other GNU partners had previously brought "a water pistol to a gunfight" when negotiating with the ANC over legislation already approved by the previous administration.
"But in Parliament, where the ANC lacks our numbers, our arsenal is considerably larger," the source concluded, highlighting the DA's crucial role in the current political landscape. The postponement of the budget speech underscores the power dynamics within the GNU and the challenges of navigating diverse interests in a coalition government.
The ANC's reliance on the DA's support has been starkly revealed, forcing a re-evaluation of the consultation process and potentially reshaping the future direction of economic policy.
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