by LUKE ZUNGA
JOHANNESBURG – SOUTH African Minister of Finance, Enock Godongwana, disgraced the African National Congress (ANC) in his handling of the 2025 National Budget, in which he played chess with increasing Value Added Tax (VAT).
The budget followed a string of uninspiring honking on growth and inclusivity. The job of the Minister of Finance centres on the budget.
There are many professionals in the treasury with specific responsibilities which contribute towards delivering a national budget.
On 21 February 2025 the Minister delivered the national budget in parliament, together with the Fiscal Framework, the Appropriation bill and Division of Revenue bill.
The budget speech is the highlight of the work of the Minister of Finance, but Godongwana’s budget caused so much division that it had to be revoked, and the budget process started again.
Without going into detail, the work to produce a national budget was not properly done, resulting in court proceedings and its court injunction.
The fatum which emanated from the budget was on the 2% increase in VAT from 15% to 17%. The Minister argued that the VAT increase was to cover a projected budget shortfall of around 180 billion.
Without the increase, the country would have to borrow in the face of higher interest rates and already high debt margins.
The real ANC party factor was not the constitutionality of the VAT increase but that the increase would exert a higher cost of living to the poor people the ANC stands for.
The ANC claims to be pro poor. The voter population in South Africa are poor people. Increasing VAT would place further burden on the voters which would be de-campaigning the ANC in the next election.
The second porosity is that in the medium term, VAT increases are regressive. The business side also registered their displeasure on VAT increase.
At 15%, South Africa already has a high VAT rate. Increasing VAT rate meant that manufacturers would sell less, thus lose business and never increase the output the government hoped for to the value of the VAT increase.
The weight of VAT payments is on the consumer, who cannot claim it back. Higher VAT means the consumer has less to spend. This means the shipping basket has less items.
Some manufacturers or retailers sell less than before. Therefore, the increase is neutralized by reduced item volumes.
The third weakness is the fascination to increase VAT as if some magic would happen the day after VAT increased.
On 21 May 2025, Godongwana resubmitted the Budget with a reduced VAT rate of half a percent. It was passed with divisions of Parliamentarians regrouped into fiefdoms whose alienation was for positions in the Government of National Unity (GNU), by countering the Democratic Alliance (DA) to please the ANC.
On this angle it also appeared the Minister of Finance was deliberately pitching this CAT increase to irritate the DA to walk away from the GNU.
Otherwise, how much would half a percentage deliver? Half percent would degrade the integrity of the VAT collection system. The effort is not worth the reward.
The fourth weakness is the reflection on the values of the Minister. All of a sudden, Godongwana had a dramatic fear of further borrowing.
Honking the VAT increase showed the Minister had run out of ideas. The dream of 2% (he said he suddenly popped the ideas of 2%) seemed to be the end of his foresight.)
As a small research body, we have a diary showing how many times we had been to the Treasury with proposals on how to grow the economy, how to raise capital to bridge the capital gap on the black majority, which would increase VAT intake.
Like all Ministers, they are under the tutelage of the Directors General (DGs). The Ministers know nothing until the DG reports it.
Governments are failed by their technocrats (director-generals / permanent secretaries), the pinnacle of which is the DG.
These fellows are technically astute, but are as ignorant as moles. You can remove the President and Ministers, but the economy will remain in doldrums, because the problem is not the politician per se, but the technocrats just below the Ministers.
Strangely, technocrats are not voted for, but wield tremendous power. The Minister must have been told that “we have no alternative but to increase VAT”. There are many alternatives.
– CAJ News
