Finance minister Enoch Godongwana faces tough decisions ahead of budget speech

Finance Minister Enoch Godongwana is facing a daunting task as he prepares to deliver his budget speech on March 12. 

With the country's economy struggling to grow, Godongwana was presented with three options to consider at a cabinet meeting on Monday, each with its own set of challenges and criticisms.

According to sources, the three options on the table are a 0,75% increase in Value-Added Tax (VAT), a fuel levy increase or a one year payment holiday for employer contributions to the Government Employees Pension Fund (GEPF), proposed by the Congress of SA Trade Unions (Cosatu) and supported by the DA.

Godongwana's budget speech last month had to be postponed last month after Government of National Unity (GNU) partners, led by the ANC and the DA, could not reach consensus on the finance minister's proposal to increase VAT by 2%.

Each of these options has been met with resistance from various stakeholders, including opposition parties and ANC alliance partner, Cosatu.

The Democratic Alliance (DA) has come out strongly against any increase in VAT, citing its negative impact on low-income households. 

"Today's GDP figures confirm what South Africans already feel in their daily lives: the economy is in crisis, growth is stagnant, and jobs remain scarce," said Mark Burke, DA spokesperson on finance. 

"A VAT increase will only exacerbate this situation, and we cannot support it. South Africans are getting poorer year after year, while past ANC governments refused to implement the critical pro-growth reforms needed to turn the tide. 

“The GNU must do things differently and the DA has repeatedly put forward a clear plan to fix the economy. Today’s numbers prove that the GNU budget must prioritise jobs and growth above all else.

“The ongoing dispute over the R58 billion in new expenditure proposals that the ANC wanted in the budget is a distraction from the real issue: unless we grow the economy much faster and spend public money far more efficiently, the budget crisis will repeat itself year after year—until there is simply no money left,” Burke said.

Cosatu spokesperson Mathew Parks said the federation remained concerns about the potential impact of a VAT increase - even if revised down from 2% to 0,75% - on the poor. 

 "We would want to see that they really invest in rebuilding frontline services," said Parks. 

"We hope that they will retain the positive things in the draft budget, such as protecting the poor and the unemployed, and stimulating the economy through infrastructure investments.

“We are hoping that the extremes are avoided, avoiding a scenario where they return to austerity cuts which we think are not sustainable…We also hope to see continued relief for the poor. Social grants and fuel prices etcetera. There is still work being done,” Parks said.

The GOOD party has also weighed in on the debate, with Secretary-General Brett Heron slamming the options presented to Godongwana. 

"We have been consistent that there are options available to the national treasury and the GNU to fund the government as it was tabled without raising VAT. 

"We could look into implementing a wealth tax above a certain threshold, and we can improve tax compliance,”  Heron said.

He said if these were the only options on the table then the national treasury would not be listening to “all the players in the room”. 

“It would be unfortunate for the government to implement those when there are other solutions,” Herron said. 

Economist Duma Gqubule also criticised the options, saying that they will have a negative impact on all South Africans. 

"There should be no VAT or fuel levy increase," Gqubule said. 

"The (GEPF) payment holiday for both employers and employees will be R92 billion a year, so it will benefit workers because they won't have reductions on their salaries.

"We need a growth budget come March 12. If we don't have a growth budget, it will result in untold misery for millions of South Africans who are suffering from the second-highest unemployment rate (in the world),” Gqubule said.

“The other two options are just non-options. They are false choices. South African GDP per capita is lower than it was in 2007 so we can't continue like this. 

“The only solution, is to stop this insanity of austerity. We have to inject new money into the economy and have a growth budget on March 12.

“How can a government that is committed to reduce the cost of living increase the fuel levy or increase VAT? It makes no sense whatsoever,” Gqubule said.

He added that in then GNU statement of intent, commitments had been made to reduce the cost of living.