VAT deadlock — GNU Budget faces historic test

As morning broke on Wednesday, Budget Day, it was clear there would be no deal to bring the DA into the fold of parties supporting the Budget.

Talks went down to the wire on Tuesday night, but Finance Minister Enoch Godongwana held firm on a small VAT increase to fund his revenue hole.

Earlier, DA negotiators had held up a carrot: make the 0.5% VAT increase temporary and agree to sweeping cuts to what they regard as wasteful expenditures. Neither Godongwana nor Treasury officials agreed.

“Things were never together. By Budget morning, that was clear,” said an aide responding to earlier reports that President Cyril Ramaphosa was confident of the full support of all his Government of National Unity (GNU) partners.

Despite Godongwana and his DA deputy, Ashor Sarupen’s good rapport, they could not agree on a plan. The DA wants to take a scalpel to waste and implement more growth measures, as its finance spokesperson, Dr Mark Burke, has outlined here.

Now, for the first time, the ANC may not be able to pass a Budget. It has faced mass opposition from the DA and its allies for the first time. Both Cosatu and the SA Communist Party are implacably opposed to the VAT increase and the direction of the Budget. So is the left at Parliament, with the EFF and MK opposing it.

“The DA, EFF and MK have enough to categorically vote it down,” said the parliamentary official, although a senior MK MP said the party was unlikely to vote with the DA.

The Daily Maverick calculation here shows the ANC needs a few votes from members of other parties to pass the Budget. But that is today, and alliances among parties shift constantly depending on what’s offered. In addition, historical loyalties and ideological differences won’t make the lines as easy as a yes or no.

Chief Whip Mzwanele Manyi said MK, for example, would open talks with the ANC caucus to persuade the party to drop VAT and consider a small wealth tax and an increase to corporate taxes. Its caucus members, like Brian Molefe, who had been the Treasury’s head of asset and liability management (before the jobs that got him into State Capture hot water), could help the ANC find a solution, said Manyi.

The Budget documents are a set of proposed laws that Parliament must pass. For the first time, expenditure items will be combed through as the House and the National Council of Provinces exercise their authority over spending and tax plans.

“They can amend, accept or reject the Budget,” said Rise Mzansi spokesperson Mabine Seabe.

‘Fantastic bargaining position’

An official who has worked in Parliament but did not want to be named said: “The DA are in a fantastic bargaining position.” The party can leverage this position to get some of the changes it wants by using the months before Parliament must pass the Budget documents to press for changes in return for its support for the state’s revenue plans. Debt interest payments are the most oversized expenditure item in the Budget. This reveals how perilous are the waters in which the ship Godongwana sails.

There is unlikely to be US Congress-style brinkmanship in spending through division of revenue delays, because the budgeting process gives the GNU parties leeway to negotiate both the expenditure and tax proposals once the various tax bills are tabled.

The only tax proposal in contention is VAT, even though Godongwana will squeeze personal income taxpayers like lemons by not adjusting brackets for inflation as the National Treasury has historically done.

A Patriotic Alliance member said that while the party didn’t like the VAT increase in government, it came at a cost. “The reality is that the DA doesn’t understand the mechanics of being in a coalition government — surely they can see they’ve blundered. When you’re in power, you have to do unpopular things. No government only does popular things. What will the world think of them bombing the GNU for 0.5% [VAT increase]?”

He conceded that Parliament was likely to change the Budget significantly. In coalition governments in local councils, the proposed budgets and the approved budgets are often very different.

The charts below show that the 2024 election result has ramifications that we are only just beginning to understand, as the end of majoritarianism has altered how money is raised and spent and who makes those decisions. DM