After VAT debacle, Enoch Godongwana says he will not quit

Finance minister Enoch Godongwana said on Thursday he would not resign after the government’s U-turn on a planned VAT hike, despite opposition calls for him to quit.

“My job is to introduce money bills. Nothing says they must be popular,” he told Reuters on the sidelines of the International Monetary Fund (IMF) and World Bank spring meetings in Washington.

Godongwana, who landed in the US capital this week grappling with the worst rift in US-SA relations in decades, was forced on Thursday to scrap a rise in VAT that threatened the stability of the ruling coalition government.

The proposal to raise the VAT by one percentage point over two years, which was intended to boost state revenue, met resistance as the economy grapples with sluggish growth and public discontent over rising living costs. An initial proposal for a two percentage point increase in VAT led to the postponement of the budget presentation in February.

The about-turn blows a R75bn hole in the medium-term budget and leaves Godongwana with the task of drawing up what he said was “a different fiscal framework in line with the new realities of revenue and spending”.

“I maintain that if the purpose for which VAT was raised is taken into account, its reversal will have a negative impact on those issues. That cannot be disputed,” he said.

The revamped fiscal framework will be keenly watched by S&P Global Ratings, which has a positive outlook on SA.

A credible outcome could secure the first credit rating upgrade for SA in two decades, while the opposite could raise future borrowing costs and dent investor appetite for the country.

“I don’t think what will inform them is the noise,” Godongwana said.

“What will trigger them is whether the final product is a sustainable budget.”

Reuters