Finance Minister Enoch Godongwana is expected to impose a Value Added Tax (VAT) increase on cash-strapped South Africans.
The Budget speech was postponed last month after parties within the Government of National Unity reached an impasse on a proposed 2 percentage point increase.
According to Nedbank, it is expecting a 0.5% to 1.0% increase in Godongwana’s new Budget speech, while IOL understands that a 0.5% VAT increase is proposed and the African National Congress ( wants to forge ahead with the hike.
The initial Budget speech would have seen VAT increase to 17% and according to Nedbank, this would have given government an additional R58 billion to the fiscus.
The bank noted that National Treasury is looking at other emerging markets where VAT is around 19% and Nedbank’s economists have noted that SA has tried to keep VAT below this threshold.
The VAT increase will undoubtedly see opposition from political parties including the Democratic Alliance (DA).
The Economic Freedom Fighters (EFF) and The MK Party said that they would also oppose the VAT increase, with the latter threatening unrest.
While the DA shares the same stance, they may be willing to accept a more modest increase in exchange for concessions on other matters.
Talks between the ANC and the DA had failed to come to any real compromise when it comes to VAT.
ANC insiders said that the DA's requirements were excessive and DA insiders said the ANC had told them to "sod off".
Meanwhile, the ANC said following successive constructive engagements within the party and between the GNU partners, the ANC's Caucus is confident that Minister Godongwana will table a budget that is balanced and appreciative of the difficult choices that need to be made in a low economic growth environment.
Emergency Cabinet meeting
President Cyril Ramaphosa has convened a cabinet meeting in a bid to reach an agreement on the budget because the parties are still at loggerheads.
IOL understands that a 0.5% VAT increase is proposed and the ANC wants to forge ahead with the hike.
However the DA told IOL it will reject the budget if there is a hike in VAT.
“We will not vote the budget in. We can’t support a budget that taxes South Africans heavier than they are."
“It would have been easier if they had committed to economic reform that we can easily direct to say out of this budget, we will see growth. But we don’t have that now, so it won’t work,” the DA said.
South Africans are suffering
Riaan Grobler, Head of Advisory Services at Everest Wealth said that taxpayers are overburdened and cannot continue to bear an ever-increasing tax burden.
“It is clear that government spending cuts are now necessary, and the state will have to tighten its belt significantly," he added.
Grobler said that this means there must be a focus on the government’s wage bill and Godongwana must explain how the government will manage its unsustainable debt burden.
"This comes amid new spending pressures, such as salary increases for public servants and the social relief grant that needs funding,” he emphasised.
Grobler said that government debt has exceeded 75% of GDP, and economic growth remains weak. Godongwana must explain how government aims to stabilise debt without imposing huge tax hikes on South Africans.
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