The decision by the National Treasury not to raise VAT to 15.5% on May 1 is the right one in the circumstances. After intense debate, a rise in VAT was found to be unnecessary, and for both economic and political reasons the proposed increase failed to command wide support. An unchanged VAT rate brings welcome certainty and relief to business and consumers and to that extent it is confidence-building. Nonetheless, several tough decisions still need to be taken to ensure South Africa's fiscal sustainability over the longer term.
Fiscal policy still faces certain key risks. To successfully manage them, a credible fiscal strategy designed to balance the books needs to be built into the third budget, which the Treasury will soon present to parliament. Parliament’s acceptance of the fiscal framework some weeks ago was based on the expressed commitment by the Treasury to find alternative ways to balance the budget within 30 days to avoid a VAT increase. The decision to now cancel th...
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