When former finance minister Malusi Gigaba delivered his Budget speech last month, many were surprised at the 1% increase in Value Added Tax (VAT). This was despite the warning signs when the minister announced in the Medium-Term Budget Policy Statement in October that there was a R50.8billion deficit and that the National Treasury needed to find sources of funding to fill that deficit gap.
The Fiscal Framework and Revenue Proposals (fiscal framework), Division of Revenue Bill and Appropriations Bill was tabled in Parliament after the Budget speech. The Budget process is governed by the Money Bills Amendment Procedure and Related Matters Act (money bills act).
The act prescribes strict time- frames within which the Budget process has to be finalised. In terms of the money bills act, both houses of Parliament: the National Assembly and the National Council of Provinces (NCOP), must finalise the fiscal framework within 16 days of the Budget being introduced to Parliament. The fiscal framework is a written instrument or rather policy of the National Treasury, which sets out government income, expenditure and debt for 2018/2019.
Public hearings and the debate in the National Assembly on the fiscal framework were concluded on March 7. The portfolio and select committees on appropriations will now commence with public hearings on the Division of Revenue Bill and the Appropriations Bill. These bills must be finalised within 35 days of the adoption of the fiscal framework.
During this phase of the Budget process, national departments will report on its strategy plans to portfolio committees on how it intends to spend the budget allocated to it, in line with priorities highlighted in the State of the Nation address (Sona) and other policies such as the National Development Plan. These budgets will be individually debated and approved by the National Assembly in Parliament.
During the public hearings of the joint standing committee on finance and select committees on finance on the fiscal framework, stakeholders cried out against the 1% VAT increase, particularly that they did not have sufficient time to interrogate the proposed tax increases. Stakeholders were not in a position to make substantive submissions on how else the National Treasury could have obtained the funds necessary to fill the Budget deficit.
The National Treasury explained that the fiscus was placed under severe pressure to find revenue streams due to the Budget deficit and the December announcement of free higher education. There was also the risk to the fiscus in terms of uncertainty in the pace of the recovery of the economy; the public service wage pressure; and precarious finances of state-owned companies (SOEs). Cosatu was deeply angry with the government for seeking to balance the Budget upon the backs of the working and middle classes and called on Parliament to reject the VAT increase and to modify the fuel increases. The labour federation emphasised that more needed to be done about wasteful and fruitless expenditure. The auditor-general said in November that over R45bn was lost in 2016/17 due to wasteful, fruitless and irregular expenditure.
The Rural Health and Advocacy Programme highlighted that the VAT increase would reduce the real disposable income of poor communities, which is a considerable risk in increasing poverty and inequality. Zero-rated goods do not make up most low-income households’ food needs.
The Organisation Undoing Tax Abuse (OUTA) advised that macroeconomic indicators should not be overly relied on to justify the increase in VAT. Above-inflation increases to social grants or marginal expansion of VAT-exempt foodstuffs will not offset the reduced purchasing power for poor and working-class consumers. It further warned that increasing taxes year after year, without material improvement in governance, posed a major risk to the economy.
Parliament Watch emphasised the importance of public participation in the Budget process and that there was a constitutional obligation to provide meaningful opportunities for public participation and taking measures to ensure that people can take advantage of the opportunities.
Civil society coalitions have collectively called for Parliament to withhold its approval of the tax proposals, effectively calling for a moratorium on the VAT increase until a proper process of public consultation and engagement had been followed. It also recommended a review of the present processes of public participation in relation to time frames, format, and implementation. They say the present process limits public participation in the Budget process.
The sentiments of stakeholders on better public participation was echoed in both the standing and select committees on finance reports on the fiscal framework. It emphasised the importance of the public participation process in increasing taxes. It proposed that more time be allowed for consultations with a wider range of stakeholders and civil society.
The joint committee report emphasised that it was acutely aware and sympathised with civil society and stakeholders that it did not have sufficient time to interrogate the fiscal framework and make substantive proposals.
* Jansen is the chief executive of Zelna Jansen Consultancy