South African Finance Minister Enoch Godongwana deserves credit for boldness in reversing the proposed increase in Value Added Tax (VAT). He has committed not to increase it by another half-a-point to 15.5%. This large tax increase was meant to bring in their desired revenue to fix our crumbling public services, especially in public education and health. Thursday’s surprising announcement comes on the heels of widespread and fierce political resistance led chiefly by the Democratic Alliance (DA)— South Africa’s main opposition party —and other political parties. They cautioned that the hike would disproportionately penalize the nation’s most at-risk residents.
Godongwana, a member of President Cyril Ramaphosa’s African National Congress (ANC), originally proposed the VAT increase as part of a broader strategy to address South Africa’s ongoing financial crisis. The DA had previously threatened to withdraw its support from the governing coalition should the increase proceed. They worried that it would add to the challenges of low-income families who are already dealing with a growing cost of living and an unemployment rate of 32%.
In light of the backlash, the DA recently noted their pleasure with government’s decision to rescind the VAT increase. They touted their dedication to spurring economic development and job creation.
“We opposed the unjust VAT hike from day one – and South Africa won,” – The DA
Mahlengi Bhengu-Motsiri of the DA was one of the first to raise the alarm. She pointed to the decision to cancel the raise as a decision of “need.” She highlighted a “shared commitment across party lines that the working class, the poor, and all other people cannot be further burdened in this economic climate.”
The ANC has rejected claims that it caved to outside pressure in dropping the VAT hike. Rather than admit they were caving to political pressure, instead they framed the decision as an acknowledgement of the economic realities. Godongwana said that the government is operating in a tough fiscal environment. He went on to call for finding new sources of revenue if we want better public services.
Critics have been quick to voice their concerns about Godongwana’s fiscal restraint. The Economic Freedom Fighters (EFF) even called the latest budgetary maneuvers a “budget fiasco.” They went on to label Godongwana as “incompetent” and called for his resignation in the heat of the controversy over the VAT proposal.
Data released by South Africa’s revenue service have raised questions about the efficacy of the last VAT increase that was passed in 2018. Each one of these increases did not raise sufficient revenue for the state. This has raised doubts about whether additional increases would bring in the expected revenue for robust public services.
With all of this political chaos, the mood of voters seems to be changing. Recent polls indicate that many South Africans feel “so dissatisfied with the party and uncertain about their future voting intention.” Analysts suggest that voters have become “free agents in South Africa’s voting market,” reflecting a growing discontent with traditional party politics.