As tensions continue to grow in the Government of National Unity (GNU), Finance Minister Enoch Godongwana distances himself from the controversial 0.5% VAT increase and says the power to reverse it lies with Parliament.
“I’m not married to any percentages or any increase,” Godongwana said in an interview with Newzroom Afrika on Wednesday, on the sidelines of President Cyril Ramaphosa’s service delivery oversight visit to the Eastern Cape.
Godongwana said the budget he intially proposed without VAT increases, was still available.
The visit, led by Ramaphosa and his Cabinet, was aimed at assessing the state of service delivery in the province.
Godongwana said decisions around the VAT increase are ultimately policy matters to be decided by Parliament, not him.
“If you remove the 0.5% VAT increase, you must find an equivalent amount on the expenditure side to ensure the fiscal framework remains balanced,” he said.
The 0.5% VAT increase has sparked divisions within the GNU.
The increase is aimed at addressing the country’s budget deficit and funding essential programmes.
The African National Congress-led government managed to pass the budget with the support of smaller parties, including those outside the GNU.
However, the Democratic Alliance (DA) and Freedom Front Plus (FF+), both part of the GNU, opposed the hike and voted against the budget.
The disagreement has deepened rifts within the GNU, with some ANC National Executive Committee (NEC) members reportedly calling for the DA to be removed from the coalition government.
Parties such as ActionSA and Build One South Africa (BOSA), which voted in favour of the budget, have submitted alternative revenue-generation proposals.
Although the VAT increase is set to take effect next month on May 1, Godongwana acknowledged that Parliament can still intervene.
He clarified that he does not have the authority to unilaterally reverse the VAT increase.
“Both Section 12 of the PFMA (Public Finance Management Act) and Section 7, Subsection 4 of the VAT Act do not give me automatic power to change it,” he said.
“Parliament has the power to change it, once the necessary proposals are made.”
Godongwana said he is awaiting formal communication from Parliament on the way forward.
“Parliament’s resolution is that the parties must make proposals to me that do not undermine the fiscal framework but replace the revenue that would have been generated by the 0.5%,” he explained.
“Once I receive that communication, we’ll be up and going.”
Asked what the deadlock could mean for provinces like the Eastern Cape, he emphasised that reversing the VAT increase would not necessarily result in budget cuts.
“If you do away with the 0.5%, it doesn’t mean budget cuts, it means the increase will not be as big as initially projected,” he said.
“For example, social grants were set to increase by more than inflation. That increase may now be a decision that lies with the Parliament.”
IOL News previously reported that the ANC is expected to abandon its push for a VAT increase in the upcoming budget, following intense opposition from its coalition partners in the GNU and other political parties.
The decision comes after a series of meetings between the ANC and various parties, including the DA, where it became clear that there would be little to no support for the VAT hike.
The DA and ANC met on Saturday to discuss the ongoing budget impasse in South Africa with the aim of finding a solution to the country's fiscal crisis, and although both parties described the discussions as constructive, the DA remains resolute that it will not back a VAT hike.
A senior ANC member who was part of the series of meetings with other parties, admitted that the party had failed to convince others to support the VAT hike, saying that all the parties vehemently opposed the VAT hike.
“If we are going to keep the GNU going and not alienate other organisations I think it's time we listen … we can't go at it on our own. It's time we realise that we are in the GNU with other parties that also have opinions. However they have to come up with solutions to the problems they bring.”
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