I wouldn’t want to be in finance minister Enoch Godongwana’s shoes, even if you handed me his blue lights. Godongwana has the mammoth task of putting together a budget that must not only be accepted by his comrades in the ANC — but should also get the nod from the partners in the government of national unity — especially the DA.
Of course, whatever decisions he takes, it would be impossible for him to please all sides. What is likely to happen is that the finance minister will deliver an austerity budget after his tax increase proposals were twice rejected — first before he even delivered his budget in February, and again after he delivered his budget speech on March 12.
Godongwana will come to parliament with a huge tax hole in his budget. On Freedom Day he issued a statement withdrawing the proposed VAT increase of a 0,5 percentage point, which would have resulted in the National Treasury raising an additional R14bn to ease spending pressures.
In his statement, He said the VAT increase withdrawal created a shortfall of R75bn over the next three years. Godongwana had been under pressure to reverse the tax increase, even within his own party. The DA took him to court, while smaller parties lobbied hard for a tax cut. All political parties claimed credit for forcing Godongwana’s hand to drop the VAT increase, including the ANC.
However, how many will take ownership of the austerity budget he will most likely deliver on Wednesday?
While the VAT increase was considered anti-poor, the revised budget won’t bring good news to the poor either.
With government debt sitting at 76.2% of GDP, Godongwana has no appetite to borrow more money to fund spending. So, all indications are that he will have to chop current spending.
Godongwana has spent the last few days consulting his cabinet colleagues and GNU partners on the budget. The corridor talk within the cabinet suggests that the R75bn tax hole he announced on Freedom Day, when he withdrew the decision to raise VAT, has expanded substantially, with suggestions it may have nearly doubled.
This is based on several factors, including a revised economic growth outlook for SA by the IMF, which has been cut by a 0.5 percentage point. The National Treasury has also factored in the possible implementation of the tariffs recently imposed by the US government on SA goods. The tariffs are expected to make a significant dent in SA’s tax revenue unless President Cyril Ramaphosa pulls a rabbit out of a hat during his meeting with US counterpart Donald Trump on Wednesday.
In March, Godongwana told the nation the VAT hike was necessary to fund infrastructure projects, social protection, the high public service wage increase, and allocations to education and health. Without the VAT increase, the minister would have to rethink some of the spending commitments he made two months ago.
While the VAT increase was considered anti-poor, the revised budget won’t bring good news to the poor either. While Godongwana is expected to provide funds for the public service wage increases, and extend the Covid-19 social relief of distress grant, he might have a tough time keeping to the announcements he made to increase the old age pension, and the child support and foster care grants.
These grants are important to Godongwana, not only because they cushion the poor from worse poverty, but because the recipients are a key voting constituency for the ANC. However, he might just have to disappoint some of them.
Other cuts will also affect the poorest of citizens. Take for example, the billions of rand Godongwana directed to provinces for front-line services. To make up for the lost VAT funds, Godongwana may have to reduce this allocation by at least half. Similar cuts may be introduced to funds set aside for the early retirement of public servants.
What about the infrastructure funds allocated to the Passenger Railway Agency of SA? Well, this may also be reduced considerably. The Border Management Authority could also lose out on additional funding that he had allocated to improve border control. The additional R4bn allocated to provinces and municipalities to deal with backlogs related to disaster management may also be taken away. This would mean it would take even longer for disaster-prone provinces like KZN to fix the damage caused by floods.
It is the price we will have to pay for the ANC government’s years of corruption and wastage of taxpayers’ money.
If some pundits have their way, this might well be Gondongwana’s last budget speech. Hopefully, to save his credibility, Wednesday’s speech will be third-time lucky. But one thing is guaranteed — the poor will be the biggest victims of the no-VAT-increase budget. The anti-poor budget could be a stick with which Ramaphosa and Godongwana’s detractors will use to hit them at the party’s national general council in December, where different factions will test the ground ahead of the party's elective conference in 2027.
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