Finance Minister Malusi Gigaba. Picture: PHILL MAGAKOE
Finance Minister Malusi Gigaba. Picture: PHILL MAGAKOE

'Deafeningly silent'

The national budget has failed to live up to the bold plans of boosting job creation and fighting corruption as outlined by President Cyril Ramaphosa in his state of the nation address (sona), union federation Cosatu said on Wednesday.

In its reaction to Finance Minister Malusi Gigaba’s address, Cosatu said the budget was “deafeningly silent on government’s plans to create jobs and fight corruption”.

Cosatu parliamentary co-ordinator Matthew Parks also expressed disappointment at the announced VAT increase, saying it would hurt workers and their families. Gigaba announced that VAT would increase from 14% to 15%, the first such adjustment since 1993.

“We, therefore, decided that increasing VAT was unavoidable if we were to maintain the integrity of our public finances,” he told the National Assembly.

Parks said Cosatu was cognisant of the pressures the government was seeking to juggle but was concerned that this was coming on the “backs of struggling and middle classes”.

Cosatu questioned why the government had “run away” from increasing taxes for the wealthy and for corporates. "In essence, politicians and their friends have looted the state and now nurses, teachers, police officers etc. must foot the bill,” Parks said.

Cosatu said the R9bn budget allocation to the Department of Trade and Industry was also problematic, saying the amount was equal to the budget allocated to politicians and their bodyguards, as well as to the Department of Arts and Culture and the Department of Sport and Recreation.

Cosatu described this as problematic, saying the Department of Trade and Industry was charged with the reindustrialisation of the economy.

The union federation was also unhappy with plans to curb expenditure on the public-service wage bill. “Public service posts have been cut by 3% over the past two years. Nurses and doctors are battling to cope. The police headcount will be cut while crime is rising. Teachers are faced with rising learner ratios, often at levels of 60 to 100 learners in a class." 

'Correct approach'

Reacting to the increase in VAT, professional services firm PwC, however, described itas the “correct approach” although it would have a major impact on household budgets.

The increase will come into effect from April 1 and is expected to raise R22bn in additional revenue. “This will have a major impact on households’ already tight budgets‚” PwC said.

The firm said implementation of the VAT increase for certain businesses would also be complex‚ and the implementation date of April 1 did not leave much time to allow businesses to effect the necessary changes.

Finance minister Malusi Gigaba announced on Wednesday that higher education would receive R57-billion from treasury. Opposition parties gave varying reactions to the minister’s education funding p...

However, PwC said the VAT increase was the correct approach “as we see further reliance on indirect taxes”.

“This raises large amounts of revenue with relatively small increases in rates due to its broad base and economic efficiency. The fact that there is no amended list of zero-rated foodstuffs is positive as it maintains the integrity and efficiency of the South African VAT system.”

‘Smack in the face’

DA leader Mmusi Maimane described the budget as an “insult to poor people”, saying it was a consequence of nine years of mismanagement by the ANC administration and was a clear signal of “a drunk government with power”.

This was also echoed by the DA’s finance spokesperson Alf Lees, who said the increase in taxes was “symptomatic of an ANC government which has failed to plan ahead and make the necessary cost-cutting measures to shield ordinary citizens from poverty.”

“The VAT increase of one percentage point is a smack in the face for the millions of South Africans who face a daily battle to put food on the table. This increase, combined with the new fuel levy increase, will force poor South Africans to pay more for basic goods, services and transport.”

He said cost-cutting measures put in place would fail to cut wasteful expenditure and “trim the fat” and will, instead, impact on service delivery.

The measures included the reduction of the share of the budget allocated to provinces, human settlements and education infrastructure, along with cuts to local government grants and a reduction in police personnel.

“The choice to cut funding for building schools and employing police officers will only put the futures and safety of our people at risk and is a terrible trade-off,” Lees said.

However, the DA gave the nod to the decision to allocate R57bn over the medium term to poor students in higher education, but warned that this was unsustainable and could not address the decades-long under-funding of the sector.

The party also warned that national debt was set to rise over the next three years, with debt service costs poised to total R592bn over the medium term.

‘Balancing act’

ANC treasurer-general Paul Mashatile described the budget as a “good balancing act”.

Speaking outside Parliament, he said the ANC was happy with the budget, with the minister dispersing funds according to the priorities of the national government, which included support for free higher education for poor students.

The governing party was also pleased that the VAT increase of a single percentage point was balanced by a zero-rating on 19 basic food items, includings maize meal, white and brown bread, samp, rice and paraffin.

He also welcomed the announcement that investment was returning to the country. “The return of Old Mutual from London to the JSE is a clear indication that investors are confident to come back and invest in the country, we welcome that.”

Mashatile also welcomed Gigaba's emphasis on the state paying suppliers and his focus on stabilising public finances.

'Tough but hopeful'

The ANC's official reaction to the budget welcomed it as "tough but hopeful" but, again, blamed a "difficult global environment" for the country's economic woes.

In a statement, the party said the Treasury has balanced the need for fiscal consolidation and strengthening the country's fiscal position on the one hand and the party's historic mission of addressing the legacy of apartheid on the other.

"In this regard, the ANC particularly welcomes the allocation of almost R60bn over the next three years to fund fee-free higher education and training for children from poor and working class backgrounds."

It noted the increase in VAT, but added that the exemption of basic necessities would shield the poorest of the poor from the increase. "We further welcome the above-inflation increases in social grants, which, once again, affirms our commitment to a comprehensive social security net for the most vulnerable in our society."

Finance Minister Malusi Gigaba delivered his annual budget speech in Parliament on February 21 2018. Here are the highlights. Subscribe to TimesLIVE here:

While tough global conditions had impacted negatively on SA's economy, political decisions by the ANC's former president Jacob Zuma also contributed to the malaise, with four finance ministers appointed to lead the Treasury in a period of two years. This was exacerbated by corruption and state capture.

The ANC said it was committed to the economic recovery plan outlined and would mobilise social partners behind it, saying the plan "must, of necessity" include strengthening  governance and restoring the credibility of state owned enterprises (SOEs), and that the government should be "unrelenting" in confronting state capture and corruption.

"Lifestyle audits in the public service and in SOEs must be standard practice for public representatives and public servants alike. Our SOEs must become engines of development — well-governed, self-sustaining and developmental in their outlook," the party said.

"Now is the time to harness and capitalise on the improvements in business confidence and investor sentiment in SA, for the benefit of all our people. The ANC unequivocally supports efforts by the ANC-led government to consolidate the deficit and stabilise debt in the medium term. The austerity measures implemented within the government must be directed to further fiscal consolidation, freeing up much needed resources to enable the government to realise its obligations in terms of our social compact."

It further said greater support for small and medium enterprises was required, with SOEs playing a more "activist and interventionist" role in the development of the sector.

The ANC called on the private sector to partner with government and labour to realise the country's goal of creating "inclusive, job-creating economic growth".

'Lead by example'

The Organisation Undoing Tax Abuse (Outa), in a media release, said that while the change in leadership had brought a new sense of hope to SA, the budget leaves it "concerned about the practical implementation of the promises".

Outa's chief operating officer Ben Theron said Gigaba "hasn't given us a comprehensive plan to eliminate systematic corruption or even costed a budget yet for the already running commission of inquiry into state capture".

It said Gigaba is "trying to mislead society" with vague promises, but no clear action, with his extension of guarantees to SOEs, "while necessary for stability, [failing] to address plans to rebuild those institutions". It added that the "hints of  privatisation of SOEs are encouraging" and that South African Airways should be disposed of as soon as possible.

The organisation was pleased that the money to fund the free higher education promise will be found, but that Gigaba "seems to have forgotten those students will soon need jobs".

Outa's CEO, Wayne Duvenage, said: "We’re positive that President Cyril Ramaphosa will take state capture seriously and reduce corruption. As such, we see the budget and tax increases as a necessary bitter pill to swallow, courtesy of Jacob Zuma and his ineffective Cabinet.” 

The organisation said it intends to keep a watch on the budget promises and spending, with Theron saying: “Minister Gigaba, in your speech, by saying we must fight corruption and maladministration  — lead by example and resign.”