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COSATU applauds the scrapping of VAT hike

The Congress of South African Trade Unions (COSATU) applauds the Minister for Finance Mr. Enoch Godongwana’s announcement that government will scrap the proposed VAT hike of 0.5%.  This will provide relief to millions of workers who have been struggling to cope with the rising costs of living. 

Working- and middle-class families spend most of their income on transport and electricity whose increases far exceed CPI.  A VAT hike and not adjusting Personal Income Tax (PIT) brackets for inflation would simply make their lives even more unbearable.

Whilst this year’s Parliamentary budget processes have been anything but elegant, we are pleased that government led by the African National Congress, has shown the humility to listen to COSATU, other organisations and society, and the political maturity to respond decisively.  These are signs of a vibrant democracy and a signal that government must listen to the frustrations of working-class communities.

What is needed now is for a simple surgical adjustment of the budget’s expenditure allocations.  The initial R75 billion that a VAT hike and PIT brackets’ non-adjustment would have generated has already been reduced to a shortfall of R32 billion in the Appropriation and Division of Revenue Bills.  The South African Revenue Service (SARS) through the tireless efforts of its staff, have further assisted in reducing this amount by exceeding revenue collection targets last month by R9 billion.

The remaining R23 billion should be sought by:

  • Reducing luxury expenditure on travel, catering, accommodation, advertising and consultants; including monies spent on Cabinet and the executives.
  • Reinforcing SARS with additional resources to boost tax compliance by at least 2% or R40 billion by February 2026.  This should include targeting tax evasion by high wealth individuals and companies, customs fraud, illicit trade in alcohol and tobacco related products and online gambling.
  • Engaging the Development Bank, Industrial Development and Public Investment Corporations (PIC) to take over some of the economic infrastructure projects where they can secure a return on investments, e.g. the 13 000 university beds.
  • Holding similar discussions with the Sector Education Training Authorities and the National Skills Fund as well as the PIC to similarly contribute towards the costs of and expanding the public employment programmes.

Treasury needs to resist the emotional and unhelpful temptation to slash the many important progressive allocations in the Budget, including the:

  • Freeze on the fuel tax, extending VAT exemptions for additional essential food items and increasing social grants for above inflation as these provide relief to millions of the most vulnerable and inject additional stimulus into the economy.  It is key that the SRD Grant too be adjusted for inflation at a minor cost of R1.7 billion.
  • Allocations rebuilding public services that working class communities and businesses depend upon, including filling critical frontline vacancies and the public service wage agreement.
  • Investments in critical infrastructure in particular in passenger and freight rail, electricity, roads, ports, water, hospitals and schools; as these are key to creating economic growth and jobs.

COSATU will continue to engage Treasury, government and Parliament.  We are confident that the remaining R23 billion can be found in ways that protect the poor, capacitate the state and stimulate growth. 

Issued by COSATU

Matthew Parks (COSATU Parliamentary Coordinator)

Cell: 082 785 0687

Email: matthew@cosatu.org.za