Johannesburg – The African National Congress (ANC) is teetering on the brink of a major climbdown over its insistence on a VAT (Value Added Tax) increase in this year's budget, as it becomes increasingly clear that the proposal lacks support from within the Government of National Unity (GNU) and across the political spectrum.
The uncertainty surrounding the VAT increase has created a state of confusion, with service providers having already begun invoicing for VAT at the 15.5% rate following parliamentary approval of the fiscal framework earlier this month. The new rate was scheduled to take effect on May 1st, but this now hangs in the balance, pending Godongwana's assent and a majority vote in the National Assembly.
The VAT issue has strained the GNU to its limits, with senior ANC figures, including President Cyril Ramaphosa and Deputy President Paul Mashatile, suggesting that the DA's vote against the budget framework effectively "defined itself out of the GNU".
For now, the GNU appears set to remain intact, but the government is now engaged in a frantic search for alternative solutions to address the country's revenue crisis. Scrapping the planned VAT hike would leave a significant R13.5 billion hole in the budget.
Sources speaking to the Sunday Times have indicated that the final blow to the VAT increase came during a meeting between ANC and DA delegations.
According to a senior ANC leader, marathon discussions with various parties represented in parliament this week made it abundantly clear that the budget would face insurmountable opposition if it included a VAT hike during the final stages of its approval in the coming months.
"The VAT thing, including even in the ANC and everybody else, is not going to pass. The increase in VAT is not going to pass," the ANC leader stated emphatically.
"The minister of finance is under pressure now to… kick it into touch or take it out completely. That is where things are now."
Another senior ANC source with inside knowledge of the budget negotiations confirmed that the focus has now shifted to whether Godongwana and the Treasury can devise a viable alternative before the end of the month.
"The debate now is on what is happening on May 1, [because] what will happen on May 1 will determine what happens on May 6," the source revealed. The budget's appropriations are scheduled to be adopted by the National Assembly on May 6th.
Those familiar with the discussions have suggested that a "political solution" will be required to scrap the proposed increase, given Godongwana's determination to push it through, even in the face of opposition from within his own party.
DA federal chair Helen Zille confirmed that her party had remained resolute in its opposition to the increase during the meeting with the ANC. However, she emphasised the DA's continued commitment to making the GNU work.
"It was a fruitful meeting in which we spoke very frankly around the issues that had led to the budget impasse. The DA reiterated its opposition to a VAT increase, particularly in the absence of any meaningful reform plan that will lead to economic growth and more jobs being created," Zille explained.
"We agreed that it was very important to have mechanisms whereby these issues can be resolved timeously and that the mechanisms of the foundational statement of intent need to be built upon to make the GNU work more functionally."
"We did not reach the issue of dismantling the GNU. We repeated our opposition to the VAT increase," Zille added.
ANC sources have indicated that the DA participants in the talks stressed that they had not voted against the entire budget, but rather against the fiscal framework, and that the "real budget vote" would take place on May 6th.
"They are saying they did not vote against the budget, the budget is coming on May 6, they voted against the framework because part of that framework includes the VAT thing which they are [still opposed to]," a senior party leader explained.
The source also suggested that Godongwana and the Treasury should be able to find the R13 billion shortfall elsewhere without compromising spending priorities, as it was "not a lot" of money in the grand scheme of things.
"There is nobody who says VAT is the answer, the only thing is where are the alternatives, where are you going to get the R13bn? So there is a big search for alternatives. That is where things are," the source said.
"From the political parties that we have met, he [Godongwana] is under pressure to find an alternative to the VAT increase. In the bigger scheme, [R13bn] is nothing. He must find it."
However, a contrasting view was expressed by another senior ANC leader, who claimed that there was no appetite to revisit the fiscal framework in order to remove the VAT increase.
This leader stated that ActionSA, which is not part of the GNU but had agreed to support the budget if the VAT hike was scrapped, was sticking to its position, while the other smaller parties had come to terms with the increase.
"The VAT increase is going ahead. That train has left the station. The only people we are having a conversation about the reversal of this thing is ActionSA, everyone else has accepted that it's going ahead," the party leader asserted.
"And what we are saying to ActionSA is 'come and join us in the GNU, leave this VAT to go through, we'll work together in the GNU to make sure that the second 0.5 percentage points does not get implemented'. We are saying to them come in and get positions as ministers or deputies and then work to ensure this is the only VAT increase."
This leader also emphasised that the ANC had made it clear in its meetings this week that it was committed to closer scrutiny of government spending and growing the economy.
"VAT can't be reversed right now because the fiscal framework is gone, it has been passed, and it was passed on the basis that it includes a VAT increase," this person argued.
ANC spokesperson Mahlengi Bhengu-Motsiri stated that it had always been the ANC's position that VAT should not be raised.
"The ANC went into these negotiations already disagreeing with the VAT increase saying let us look at the revenue side of the budget in order to offset the VAT increase," Bhengu-Motsiri said.
