PREVIEW
Centre-right Democratic Alliance is using its muscle in coalition to assert dissenting economic agenda
After a majority in parliament failed to back Finance Minister Enoch Godongwana’s amended budget on 12 March he still has more drafting to do to get it over the line. The split over the budget’s tax plans has become the most serious test of the Government of National Unity – dominated by the African National Congress and the centre-right Democratic Alliance – since its formation last June (AC Vol 66 No 5, Tax and spend row opens new schism in coalition).
Godongwana postponed his budget presentation last month after fierce resistance to his plan to raise value-added-tax from 15% to 17%. Increasing VAT – and the across-the-board price rises it causes – is one of the more regressive taxes to raise as it hits the poorest disproportionately hard.
The minister’s response, in a ‘bold and pragmatic’ budget, he said, was to reduce the VAT level to 16%, phased in over two years. He has rejected increases to personal and corporate taxes on the grounds that these would be ‘potentially harming investment, job creation and economic growth’.
Opposition MPs say that by drawing up his budget plans behind closed doors but without making sure of the coalition’s support, Godongwana has made a strategic mistake. Needing the support of eight other parties in the Government of National Unity, his critics argued that he should instead have read his budget plan to parliament as scheduled in February and opened a debate on the limited options facing the treasury as it tries to cut the deficit.
Having two budgets publicly rejected by his coalition partners has given opposition parties, led by former President Jacob Zuma's Umkhonto weSizwe (MK) party and Julius Malema's Economic Freedom Fighters (EFF), an easy target to accuse the government of hitting the poor.
The ANC leadership’s calculation is that a VAT hike can pay for spending rises on education and healthcare as well as pay for civil servants’ salary hikes and more spending on infrastructure. The DA says it will not support tax rises unless they are temporary and accompanied by structural reforms (AC Vol 65 No 13, The ANC stitches together a pro-market coalition).
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