Democratic South Africa’s first budget postponement gives National Treasury three weeks to re-evaluate its approach to expanding the revenue base – and the Institute of Race Relations (IRR) has just published a proposal for doing just that.
In a statement on Friday, the IRR notes: “The opposition to a VAT increase has sharpened the focus on alternative solutions that could free up revenue without placing an extra burden on consumers and potentially having counterproductive effects on revenue.”
The budget had to be postponed because of opposition by the DA and others to finance minister Enoch Godongwana’s initial proposal for a two-percentage point VAT increase, from 15% to 17%.
“Earlier this week, the Institute of Race Relations (IRR) released a report, authored by IRR fellow and Executive Director of IRR Legal Gabriel Crouse, proposing cutting VAT by 3.5 percentage points, from 15% to 11.5%. The report identifies R100bn in potential savings if government prioritises value-for-money procurement.”
Says IRR researcher Anlu Keeve: “The report argues that if government is transparent on the costs associated with BEE procurements, it would expose how much taxpayers are overpaying.
“And it shows how redirecting these funds could create the fiscal space to actually lower VAT.”
The IRR says that fiscal space “is exactly what National Treasury needs right now, but it won’t get there without forcing the government to face reality. The African National Congress (ANC) has for far too long let political interests drive the budget instead of shaping policy around what the budget can actually sustain.”
“But, this time,” Keeve points out, “Treasury finds itself in a rare position of power.”
She continues: “Ordinarily, the budget is not up for negotiation. But this year, opposition to the budget emerged before a single number was publicly tabled, forcing an unexpected opening for compromise. If government (mainly the ANC) wants the budget to be approved, it will have to find the kind of savings that would demonstrably be available if it sacrificed wasteful BEE procurement spending.”
“Government can no longer afford to outrun economic reality. The pie belongs to the people who baked it – all taxpayers, which includes those who pay only VAT. And they cannot afford another year of crumbs,” Keeve concludes.