The ANC appears to be on the verge of backing down on any increase in VAT. At first, the ANC’s back-down on a VAT increase was partial and gradual, but it now looks as if it will be sudden and complete.
The plan in the Budget Speech that Finance Minister Enoch Godongwana was to have presented in February was for one-percentage-point increases this year and next. With the partial back-down, it became half a percentage point increase this year and next. Then it was suggested it would only be half a percentage point only this year. And now it seems unlikely there will be any increase at all, if the weekend front page story in the Sunday Times holds true.
A back-down hands a victory to the Democratic Alliance (DA), which has led the fight against the VAT increase, and to a lesser extent to some other parties that later came round to opposing any increase in VAT. What is clear is that the ANC would not back down on a VAT increase if it had sufficient votes in Parliament to carry this through.
It has been shopping around, and the signs are that despite promises of Cabinet seats, the numbers still do not add up for the ANC in the National Assembly. It must now know that it cannot get more than 200 votes in Parliament for the Budget in a vote on May 6th. What it comes down to is that the ANC, with 159 seats, does not have enough support without the 87 seats of the DA and the six of the Front Plus (FF+) to take it over the 200-vote mark that it needs on this issue.
If it does not handle the ensuing political game with care, the ANC could find itself facing a vote of confidence. It has said it will re-open the Government of National Unity (GNU) to all parties and no doubt try to reward parties with Cabinet posts. But now that it is having to back down on a VAT rise, the reset of the GNU has not fully worked to gain promises of support. The DA and other parties smell blood and will be more demanding.
Widely unpopular
As this is a bread-and-butter issue, a rise in VAT is bound to be widely unpopular. It is bizarre that the ANC chose this issue, as it was one on which it should have known it could easily lose.
The ANC seems to have misread its own supporters and the country. For the first time ever, a national poll has found that the DA has a marginal lead over the ANC.
The Institute of Race Relations poll, released over the weekend, showed the DA had a marginal lead of 30.3 percent over the ANC’s 29.7 percent. The Institute says the reason for the ANC’s loss of support since last year’s election, when it obtained 40.2 percent of the vote, is due to its attempt to raise VAT. The poll also found that the rise in DA support, particularly among black voters from five to 18 percent, is because the party opposed the VAT increase.
Why did the ANC make this big error of trying to raise VAT?
Perhaps it was because of the absence of alternatives to raise revenue, cut spending or increase borrowing. Raising income taxes would only have yielded marginal amounts as we are already highly taxed. Spending cuts must have been considered, but many cuts are politically off-limits as these would hit jobs, and therefore upset the civil servants’ unions, or empowerment interests who donate to the party. And the Social Relief of Distress grant that was brought in to give temporary relief in response to the Covid pandemic can’t be touched.
What this does is force the ANC into taking some very hard decisions on cuts, which could yet make it more unpopular.
Turning point
The showdown over VAT is a turning point in the politics of the GNU. Although the optimism surrounding the GNU has been shattered, the arrangement has not ended. What it shows is ANC vulnerability and that a new working arrangement for the GNU is emerging.
The DA has attempted to try to gain wider concessions, in addition to the scrapping of VAT, from the showdown. It has also pushed for a spending review, doing away with the nil-compensation clause in the Expropriation Act and scrapping the National Health Insurance Fund. It probably will not have much success on these, but it is well worth trying for, as after all, economic growth issues impinge on the Budget.
The showdown has changed the nature of the arrangement around the GNU. This will now be along the lines of a confidence-and-supply deal for the ANC, but neither of these will be guaranteed by the participants. In votes of confidence – whether or not the government should fall or be supported, the DA and other GNU parties may or may not support the ANC. And this might also be the case on supply, as is the case with the current Budget. Expect a lot more wheeling and dealing over GNU matters.
There is little trust left between the ANC and the DA, after President Cyril Ramaphosa went ahead and signed the Expropriation Act and the Basic Education Law Amendment Act. That makes the GNU a lot more tenuous, but it could just hold, if the ANC is prepared to give way on other issues.
With the ANC’s folding on the VAT issue, it must be seen as vulnerable to giving way on other issues.
A showdown
The moment the DA and others support the Budget without a VAT increase, they have, at least for the moment, lost their leverage over the ANC. But other issues are highly likely to emerge that could bring about a showdown. What these might be is difficult to tell. It also depends on how other parties play their hand and frame a particular issue.
In its opposition to the VAT rise, the DA has some unusual allies – uMkhonto WeSizwe Party (MK) and the Economic Freedom Fighters, and it probably has a majority with many of the smaller parties. On other core issues such as empowerment, scrapping National Health Insurance, easing labour laws, it would not be able to get support from the radical comrade parties.
An alliance of the DA, Freedom Front Plus, and a few small parties is insufficient for a reform agenda; it just does not have the numbers.
But just as the VAT issue was a surprise for the ANC, there might be surprises that could still test its grip on the GNU.
[Image: Bonginkosi Tekane]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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