Prof Bonke Dumisa
IT is very normal on economic matters and even on purely financial matters for people to strongly disagree, not because they hate each other but because there are always different angles from which different people can look at any one challenge or problem.
It is precisely on these grounds that many people jokingly like saying “This world would be a better place with fewer debates if all economists had only one hand each; this is because each economist would just give one answer to a question, instead of saying “on the one hand we can do J, K, N, and R, but on the other hand we can do T, V, X, and Y”.
I am consciously avoiding opining on the wisdom or otherwise of the private discussion between Minister of Finance Enoch Godongwana, his National Treasury Director-General Duncan Pieterse, and Minister in the Presidency Khumbudzo Ntshaveni, that unfortunately, became very public and very entertaining to those who enjoy poking fun at ANC politicians in particular and at all politicians and well-known people in general.
Many people would not have paid any serious attention to this private conversation where the very effective Godongwana expressed his serious irritation with what the SARS Commissioner Edward Kieswetter had said in opposition to any proposed VAT Increase and tax increases; it was Ntshaveni’s question “uhamba nini kanti yena”, meaning “When is SARS Commissioner Edward Kieswetter leaving that position” that triggered a lot of mass media speculation and criticisms.
My well-considered position on this is that private conversations amongst these colleagues are becoming an unnecessary sideshow and a distraction from addressing the real issues on this matter.In my many public interviews, on television, radio, and print media, where I did Budget Speech previews, I consistently said there must be no tax increases, especially, no VAT increases, primarily because VAT is regressive, in that it negatively affects the poorest of the poor the worst; and that VAT Exemptions for certain product types has proved less effective.
Kieswetter repeated his assertion that increasing taxes was not an option when addressing a panel discussion on the margins of the G20 finance ministers meeting in Cape Town this week. He said the government must start bolstering the revenue collection capacity of SARS, instead of jumping into hiking taxes.
It is estimated that about R800 billion remains uncollected annually from both individuals and companies.Kieswetter argued that a better-funded SARS could collect an additional R460 billion if the Tax Administration at SARS was adequately bolstered. On the other hand, the government estimates an additional R58 billion in the 2025/26 financial year if VAT increases by 2% from 15% to 17%.
From these two positions, it looks as if the suggested approach by Kieswetter is likely to yield better results than the route of increasing VAT which will be disastrous for the low-income groups and the poorest of the poor.
The question we must ask ourselves is whether the Minister of Finance and his team had fully applied their minds to the issue of VAT being regressive.
What has transpired since the botched Budget Speech on Wednesday 19 February 2025 is that many ANC parliamentarians and ordinary ANC members have by now come up publicly to say they did not agree with the government’s approach of raising VAT.
We all know that the government just has no money; with the current government debt of over R6 trillion and our debt-to-GDP ratio at over 70%.
A recent World Bank Report on South Africa did raise this as a red flag. From what we hear, the government decided to focus on looking at easier ways of raising additional revenues. The appeal of increasing VAT lies in its ease of implementation.
The argument that the National Treasury was going to recommend VAT zero-rating of more product types to lessen the burden on the poor is just not convincing. There is no comprehensive available evidence to prove that zero-rating of some basic food products has indeed shielded more poor people from the negative impact of VAT.
There are now some suggestions that some targeted product types which are mostly bought by high-income people may have VAT increases to higher levels like 25%, etc. The problem with such alternative approaches is that they thus complicate the simplicity of the implementation of VAT increases.
Another option that the government is strongly resisting, because it fears being deliberately labelled “anti-poor” is putting a public moratorium on increases to different types of social grants, public service salary increases and significantly reducing our bloated government with its exorbitant fringe benefits at all three tiers. We need to admit that as a country, we are living beyond our needs.
One of the push factors for this VAT Increase is said to be to offer public servants sizable “Cost of Living” related salary increases; hence the need for government to increase VAT.
The increase in VAT will thus lead to follow-up additional salary increase demands. It is not unheard of globally for governments to impose far-ranging expenditure freezes, which effective as it may be has unfortunately led to military coup d'états and other associated public upheavals in many countries.
The problem with this country continuing to pretend as if it is very rich by paying for all those things it cannot afford is that we will continue raising more debt after debt; and continue getting deeper and deeper into junk status.
The reason the government will continue avoiding making these tough decisions is because of the prevailing culture of entitlement in South Africa. Many new false messiahs are promising to give the people more and more freebies as if money grows on trees.
It is precisely for this reason that people who were at the top of state capture are now back as the new messiahs, and those who dare say let us be prudent are summarily branded counter-revolutionaries. That’s how Robert Mugabe destroyed Zimbabwe, and we never learn.
* Prof Bonke Dumisa is an independent economic analyst.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.