Godongwana withdraws planned VAT hike after political pushback

South Africa's National Treasury recently made a significant decision to withdraw the proposed increase in value added tax (VAT) following a revenue shortfall of R75 billion. The plan to raise VAT by one percentage point over two years was abandoned after extensive consultations with political parties and careful consideration of recommendations by the parliamentary committee. The Finance Minister faced immense political pushback, leading to the withdrawal of the VAT hike. Azar Jammine, Director & Chief Economist at Econometrix, shared his insights on the matter. The Finance Minister's decision to retract the VAT increase was driven by widespread opposition from various political parties, including within the ANC. The threat of a court action initiated by the DA, supported by the EFF, also played a crucial role in the Minister's decision. Additionally, the ANC's agreement with Action SA to explore alternative revenue sources further pressured the government to reconsider the VAT hike. Despite the revenue gap of R75 billion, Jammine suggested that cost-cutting measures and revised economic growth forecasts could help bridge the deficit. He proposed borrowing initially and gradually making up for it through savings in government expenditure. The decision to withdraw the VAT hike not only highlights the importance of consultation and cooperation among political parties but also signals a shift towards more inclusive and democratic governance in South Africa. The collaboration between different parties, including those outside the GNU, reflects a positive step towards enhanced policy-making and increased oversight over government practices. While the Finance Minister may have faced criticism and embarrassment over the VAT proposal, the outcome demonstrates a growing recognition of the need for consensus-building and accountability in the country's economic decision-making process.