Finance Minister Enoch Godongwana. Photo: Dwayne Senior/Getty Images
Finance Minister Enoch Godognwana on Friday defended the budget he tabled this week providing for a one percentage point VAT increase staggered over two years to sceptical, sometimes hostile MPs as the battle to have it approved by parliament got underway.
Godongwana began his presentation to a joint sitting of the select and standing committees on finance and appropriation by noting that protests against cuts to the health budget had become commonplace.
“The last march was to my office,” he said.
The minister is on record as taking full responsibility for the decision to announce the first VAT increase since 2018. The Democratic Alliance announced minutes before it was tabled on Wednesday that it would not support the budget. The lack of support from the ANC’s biggest coalition partner has raised the possibility of amendments to the budget for the first time in the democratic era.
“It is about [being able] to provide a service for our communities. The health budget was so eroded that the accruals amount to R21 billion. If all of us here as honourable members, we care about these poor communities whose services have been eroded, it is going to be important that, irrespective of where we stand on a number of things, we keep our eye on the ball,” Godongwana said.
He conceded that MPs might differ with the decision to raise taxes to find the revenue to fill these holes in service delivery, but said he did not think they would disagree with the need to fund services.
“We may disagree, colleagues — I am telling you about methodologies and other things — but I don’t think we will disagree on the substantive nature of what we are attempting to resolve.
Godongwana said the fact that the military is underfunded was made starkly apparent by the difficulties the South African National Defence Force experienced as part of the deployment of the SADC Mission in the Democratic Republic of the Congo.
The contested budget he tabled on Wednesday allocated R5 billion for the mission, which the Southern African Development Community decided at a special virtual summit on Thursday to terminate. Fourteen South African soldiers were killed in January when M23 rebels captured the eastern DRC city of Goma
“Our defence force’s lack of funding became clear during the DRC deployment — we cannot continue like that. I am just citing two examples of what we are dealing with, colleagues,” Godongwana said.
Finding more money for health, education, security and commuter rail services were among the minister’s stated reasons for insisting on increasing the VAT rate.
Godongwana was forced on February 19 to abandon a prepared budget in which he had planned to announce a two percentage point hike. This met with resistance, not only from the DA, but from fellow ANC ministers.
He stressed on Friday that he needed to find R19 billion for the South African Passenger Rail Agency to invest in infrastructure that would allow trains to run at regular intervals to spare workers the high cost of other forms of transport.
“The World Bank studies show that the difference rand-for-rand between a South African worker and a South Korean worker, the difference in terms of disposable income, is because the South African worker pays a lot on transport.”
He brought up these examples to allow lawmakers to understand his rationale for trying to raise more revenue through taxes.
“We may be taking a wrong direction in there but you must understand where we are heading to. That is what we want members to appreciate.”
The director general of the treasury, Duncan Pieterse, said he believed the budget laid the ground for the department to be able to invest in areas that would speed up growth, which the budget review forecast to average 1.8% annually over the next three years. The treasury said the economy grew by 0.6% in 2024.
Pieterse reiterated that the budget was informed by a commitment to fiscal consolidation and that the treasury was committed to ensuring that it achieved a growing primary of 0.5% in the current year, rising to 0.9% in 2025-26.
Gross loan debt is now expected to stabilise at 76.2% of GDP in 2025-26. That is almost one percentage point higher than forecast last year and 0.1 percentage points above the forecast in last month’s draft — a function of the reduced VAT increase.
Like Godongwana, Pieterse alluded to the likelihood of contestation as the committees process the budget, which they have a fortnight to do.
In terms of the Money Bills Amendment Procedure and Related Matters Act, the finance committees have 16 days, from the tabling of the budget, to report to the National Assembly and the National Council of Provinces whether they accept or reject the minister’s revenue proposals.
The reports must be considered by the chambers within that same timeframe.
“And then, depending on whether the committees accept or amend the fiscal framework, there will then be an engagement process with the minister of finance and the national treasury,” Pieterse said.
“Very importantly, from 1 April onwards, expenditure is governed by section 29 of the PFMA [Public Finance Management Act] which provides for departments to continue spending in the absence of a passed budget, up to 45% of last year’s allocations for the first four months but this, of course, does impose limits on the ability of departments to spend any new allocations.”
Economic Freedom Fighters (EFF) MP Sinawo Thambo said he wished to point out that the country’s economic problems and fiscal shortages were the fault of the ANC.
“There is an attempt to create the impression that we must all take collective responsibility for the shortfalls and the challenges facing our economy and I think it is completely unfair,” he said.
Thambo said the government had borrowed money for years for infrastructure spending, only for the funds to be looted.
“There has been constant borrowing. We are sitting with these high and ballooning debt service costs today, and accumulated debt, but we don’t see the practical and meaningful infrastructure developments that come out of it, and therefore we also state that, perhaps through no fault of yours, you borrow and you allocate and then they get looted in various sectors of our society.
“But you cannot continue to pursue that route and [those] were also approaches that were pursued by national treasury’s planning, which have failed,” he said.
“Now we are left with taxation as an option and we want to tell you it is also going to be a failure. Taxation cannot stimulate economic growth and it cannot be your approach to sort of determine how you are going to resolve your expenditure costs. It is not sustainable.”
Thambo’s input, and that of fellow EFF MPs, appeared to put paid to suggestions that the ANC would lean on that party for support to have the budget passed, in the absence of the determining votes of the DA.
EFF leader Julius Malema had said earlier that this would not happen.
