Finance Minister Enoch Godongwana. (David Harrison/M&G)
Finance Minister Enoch Godongwana has called for a shift to consultative budget-making in coming months after bluntly describing the political crisis that forced him to prepare a third version of this year’s budget as a mess.
“Were any lessons learnt? The first one is that we are in a coalition government. We need to do things differently,” Godongwana told a media briefing which he said would be his last before he tabled the budget yet again on 21 May.
“We are dealing with uncharted terrain. As you are aware, we used to have a budget with a dominant party, being the ANC, and if one was preparing the budget, you could be sure that you would go to parliament and the ANC would pass the budget.”
He conceded that he had not foreseen the difficulty that he would face in securing the support of all 10 parties in the coalition, eventually leading him to revoke a 0.5 percentage point VAT increase a week before it was due to take effect.
“I am not going to put blame on anybody, but that process on its own, because all of us are new in this thing, was messy.”
Consultation with coalition partners should start in September, a month before the treasury chief tables the medium-term budget policy statement, and five months before the national budget in February.
“We have agreed that we have to now find a new process of consultation which must start latest September, so that, by the time we table the medium-term budget policy statement, there is broadly an agreed approach to the budget over the medium term.”
The minister stressed he was speaking for the treasury, not the ANC, but believed the budget should be a consolidating force for a broad coalition.
“So, we will be developing a process of consultation in this regard, particularly in the GNU [government of national unity],” he said.
“A budget is an important political tool. It is going to be important that we kind of maximise unity around the budget as a political tool.
“That is the lesson — which means we will aim to craft, as soon as possible, an agreement with a number of political parties.”
Godongwana abandoned the first budget minutes before delivery in parliament in February and withdrew the second last week after caving on his insistence that VAT was the only viable revenue source to sustain spending on essential services.
The third, he said, would per force see the treasury adjust its economic assumptions, notably the growth forecast (1.9%), and cut expenditure without sacrificing its commitment to funding social services.
“There will be a need for adjustments,” he said, qualifying that departments’ baselines would remain untouched.
Godongwana said his department would prepare a “sellable document” to take to parliament. It was too early to say whether savings could be found, and if this were possible, he would want to announce it in three weeks’ time.
“I can’t tell you now. What am I going to say on the 21st? I must have something to brag about on the 21st.”
He was adamant that he would neither increase borrowing nor raise other tax rates to cover the shortfall created by scrapping a 1% VAT increase, staggered over two years, which the treasury has put at R75 billion over the medium term.
“We have reached a stage where we are paying R1 billion a day on debt-service costs.
“We are also borrowing R2 billion a day. Fifty percent of what we are borrowing a day goes into debt service costs … All of that is beginning to crowd out investment in these developmental objectives.”
Without fiscal consolidation, he stressed, the country would soon find itself begging the International Monetary Fund for a bailout.
“That is not what we want. We should not allow that in our lifetime.”
Godongwana stressed job creation remained the government’s priority and dismissed suggestions that the discord that forced him to bin the VAT hike would discourage investment needed to drive employment.
International ratings agencies and investors were accustomed to “the chaos of coalition governments” in more advanced economies, the minister said: “For them, it is not something new.”
They would make their assessment on the basis of the fiscal framework set out in the new budget, not the to and fro on taxation that had necessitated a third draft, which will now reach the National Assembly after the start of the financial year.
“We are not worried. The credibility issue is not going to be the reversal of VAT,” he said.
“The credibility issue is going to arise from the final product, the final budget that is adopted, whether that budget will reflect fiscal sustainability and fiscal prudence, that is where the credibility issue will arise.”
The minister’s decision to revise the budget came a day after the Western Cape high court heard an urgent application by the Democratic Alliance (DA) to overturn the passage of the fiscal framework and prevent the first 0.5% VAT increase from taking effect on Thursday.
On Sunday, the court handed down an order setting aside the adoption of the fiscal framework by both chambers of parliament on April 2.
Godongwana had agreed to settle this part of the case, but continues to oppose the second in which the DA is challenging the constitutionality of section 7(4) of the VAT Act on the basis that the power to raise tax rates rests in parliament and cannot be delegated to the minister.
Section 7.7 of the Constitution allowed him to table money bills, he said on Wednesday, and therefore the decision to increase VAT had not been unlawful.
He dismissed a call for his resignation by the Economic Freedom Fighters, which had joined in the DA’s court case, saying he served at the pleasure of the president who understood the complexity of the coalition he led.
“If that president falls, I fall, but for as long as he wants me to work, I am going to work.”
Although the DA claimed Godongwana’s climbdown as a political and courtroom victory, the decision also served to appease smaller parties who had opposed the increase. This provides the ANC with some political insurance in the likely event of more friction with its biggest coalition partner.
On Tuesday, the DA filed a constitutional challenge to Section 15A of the Employment Equity Amendment Act, signalling that it would continue to agitate for government policy that it considers bad for the economy to be dismantled.