The finance minister held on to increasing VAT rather than taxing the rich.
Civil society groups have come out against the national budget and called for its rejection as it is anti-poor. Trade unions, non-governmental organisations and community-based organisations protested against the national budget speech which was delivered on Wednesday. The budget speech had been postponed due to disagreement between the political parties that form the governing coalition over a proposed VAT increase of two percentage points. In his second attempt, finance minister Enoch Godongwana pushed through a one percent VAT increase to be phased in over two years.
The former trade union leader said that the VAT increase is to be split over two years with an increase of half a percent (0.5%), effective from April this year, and another half percentage point increase will come into effect April next year, taking VAT to 16%.
Godongwana said that they considered alternatives to raising the VAT rate but it was the only viable option. “We weighed up the policy trade-offs involved, including increases to corporate and personal income taxes. Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth. Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs. Furthermore, South Africa’s corporate income tax collections are already higher than most of our peer countries,” he said.
The Alternative Information and Development Centre (AIDC) in describing the budget as anti-poor, said that it “dances to the tune of the international financial institutions and their fixation on running a primary budget surplus when every cent is needed to relieve the suffering of the more than 40-million people
languishing in poverty.” The VAT increase will make a basic basket of groceries R375 more expensive, according to AIDC, while the country loses R500-billion every year through illicit financial flows.
“The poor again are made to shoulder the burden of the economic crisis by having to bear the burden of a VAT increase, despite other measures which are available to enhance government revenue. Nothing more is done to tax the extremely wealthy in this country. No wealth tax, no tax on luxury goods items, and no increase in corporate tax. It represents a fear of going against the financial markets and the rich establishment,” said AIDC in a statement.
No just transition
Meanwhile, environmental justice organisations described the budget as failing to address the deepening energy and climate crises. “It is equally concerning that the budget is silent on support for household rooftop solar. Treasury has once again failed to meet international grant funding halfway to drive a just transition. Instead, budget allocations for pipeline projects and water-use licenses suggest continued government interest in fossil fuel extraction rather than accelerating a shift to a low-carbon economy,” said Thabo Sibeko from Earthlife Africa.
“The rising cost of living and soaring energy prices remain major concerns. This is why the
VAT increase is so troubling – it will hit marginalised households the hardest. With the cost of basic
goods already high, how will struggling families afford yet another increase? This decision raises
serious questions about the government’s commitment to economic justice and energy
affordability,” said Lisa Makaula from the Green Connection.
Speak-out against austerity outside parliament
On Wednesday, scores of civil society groups under the umbrella of the People’s Budget Campaign gathered near parliament to protest budget cuts. Congress of South African Trade Unions (Cosatu) president, Zingiswa Losi said the union federation wants the treasury to fund the South African Revenue Service (SARS) so it can collect tax efficiently. “If government is funding SARS, then it will have the potential to crack down on tax evasion and illicit financial flows,“ she said.
Losi said a well-funded and beefed-up SARS would make more money than a VAT increase for the government. “What we don’t want is a budget that is a burden to the poor and the working class,“ she said.
Tax the rich, feed the poor
Mercia Andrews, spokesperson for Rural Women Assembly, said budget cuts had halted land reform projects. “There is little money for rural development. Most importantly, there is no land reform. It came to a halt because there is no money,” she said. About the VAT hike, Andrews said: “Farm workers are the poorest; a tax increase will hit them very hard because they already have little money for food.”
Vuka Chonco, a member of the national executive of the South African Federation of Trade Unions, said Saftu wants the government to “increase the tax to 32 percent for employers because they can afford it.” The government currently gets a tax of 27 percent from each employer, he said. “We want government to introduce a luxury tax for the rich who own private jets and other luxury goods.”
Chonco also rejected a VAT increase as “regressive”. “If you increase VAT, you are increasing the burden to the lowest paid workers because VAT takes a bigger percentage when they are buying goods,” he said.
Mabhelandile Twani, deputy chairperson of Intlungu Yabahlali Basematyotyombeni, said a VAT increase would leave shack dwellers with less money for food. “Most of the shack dwellers live off government grants, so they won´t have money to buy even bread. Poverty will be worse,” he said.
Twani said shack dwellers are struggling with the rising cost of living. “Supermarkets and big food retailers used to sell combos which included different types of veggies, but they no longer sell them because we can’t afford them,” he said. “We want government to subsidise basic foods such as bread.” He wants Godongwana to support efforts to bring basic services to informal settlements. Budget cuts cause shack dwellers to live without basic services, said Twani: “We now use a bucket system because the city has no money for flush toilets because it gets little money from the treasury. The bucket system makes us lose dignity and exposes us to health risks.”
Sinoyolo Ngantweni, a representative of Equal Education Tertiary Society, said budget cuts affect the administration of universities. “Universities rely on government subsidies, so budget cuts leave universities with little money and cause them to struggle to function,” he said. Budget cuts are responsible for the current housing crises at Western Cape universities.
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