Protesters demonstrating against proposed budget and social funding cuts ahead of Finance Minister Enoch Godongwana's budget speech in Cape Town.
Image: AFP
Many South African families have that rich uncle most of us aspired to become like in the early 1990s.
You know, that uncle who drove the dapper BMW E36 3 Series we called ‘the Dolphin’, the uncle who always wore the crisp Brentwood pants, with double mercerised cotton golfers and who sent their three kids to the posh Model C schools in the suburbs.
Remember them, they struggled with vernac and they were proud of it.
Of course the rich uncle was accompanied by his wife, the rich auntie who would rather be caught dead before she was seen chopping carrots and onions with the other aunties in the family.
This auntie always advocated for catering services rather than menial village activities like cooking and preparing food for the masses.
And then around the mid-to-late 2000s an unnamed and untold event happened in the rich uncles life, and slowly, but surely, uncles assets started disappearing one by one, until one day, the rich uncle was forced to move back home to the dreaded family home after disaster struck, he lost it all.
South Africa finds itself in a similar predicament as the rich uncle of the 1990s, who struggled his way through the 2000s, kept on good appearances, before the wheels came off in the 2010s and the crash finally hit in the 2020s.
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South Africa finds itself in its Uncle Azania moment; straddled with massive debt, unemployment and a stagnant economy, we are struggling to balance the books day by day.
Unlike that rich uncle, reality is South Africa has never truly been that rich uncle, but she has flattered to deceive with competing policies such as former president Thabo Mbeku’s Growth, Employment and Redistribution (GEAR) program, which never truly produced the jobs boom it promised post-1996 and was abhorred by the unions, and the Reconstruction and Development Programme (RDP), which was aimed at addressing South Africa’s apartheid history of colonialism, racism, apartheid, sexism and repressive labour policies.
Present day, South Africa’s problems have been compounded over the last 20 years, mainly due to a lack of economic growth. The Covid-19 pandemic has not helped either, with South Africa arguably still in financial ruin struggling to emerge from the shadows of that pandemic.
With a small tax base of around seven million and over 25 million social welfare grant recipients in a population of over 60 million people, the country's developmental needs for schools, hospitals, early learning centres, better rail, better roads, housing, health facilities and other amenities, are far outpacing the money available to Treasury.
Finance Minister Enoch Godongwana's two percentage point VAT increase proposal, albeit opportunistic, certainly raises the alarm bells.
We are broke, we don't have enough money to retain and pay the salaries of public servants including teachers, doctors, nurses and other front line workers we desperately need to service South African citizens.
The proposed VAT increase would have injected over R60 billion into the fiscus, says Treasury, who say the money would have assisted with the salaries of public servants, rejuvenating our ailing rail network, setting up and employing more teachers for early childhood development programmes.
I have seen all manner of suggestions, from halving the Cabinet, cutting VIP protection costs, selling SOEs and the like, as practical as the ideas seem, they are equally impractical and unlikely to be considered for a myriad of reasons, but mostly, they would be politically suicidal moves for the ANC.
In documents supplied by Treasury on Wednesday, they have also cautioned that they felt the VAT increase was the most viable option on the table, having learnt from experience that increases on corporate income tax and personal income tax could be circumvented by taxpayers.
“South Africa has a high share of personal income tax as a percent of GDP and a high top tax rate, both of which are much higher than other developing economies.
“Previous tax rate increases for personal income tax did not raise the expected revenue as taxpayers changed their behaviour to avoid the tax,” Treasury warned.
Treasury also sounded the alarm, saying personal income tax and corporate income tax had a negative impact on employment, savings, investment and growth, compared to a VAT increase. So, inasmuch as they could have persisted with this, Treasury went for the low-hanging fruit of VAT, fuelling a furious reaction from the Government of National Unity Cabinet ministers, with the DA, we are led to believe, among those protesting loudest behind the scenes.
One has to wonder.
Said Treasury in justifying the proposed VAT increase:
“Government had to decide whether to leave these matters unattended or to address them. Providing these services has large spending implications that require additional revenue.
“The immediate nature of these spending pressures also required identifying the most efficient tax increases in order to meet the spending requirements”.
Essentially over R60 billion this financial year alone is needed to fund teacher costs in schools and early childhood development centres, doctors, nurses and front line workers staffing costs, while also funding rail projects in communities.
The two percentage point VAT hike proposal is all but dead in the woods, it's not going to happen. Treasury may be forced to forget about it entirely in the worst case scenario, but they have outlined what the countries immediate and pressing needs are and I am yet to see anyone argue against it.
We all accept we need the young teachers, nurses, doctors and a working rail system, but where and how will we fund this?
Perhaps if we placed a moratorium on theft and corruption for just one calendar that would do the trick?
R60 billion is a lot of money and it will be difficult to find the money in one full swipe. We also know the challenges that come with austerity.
“Institutions like Correctional Services need to reduce the tax burden, as part of the rehabilitation and skills development program they need to get into agriculture, textiles,” suggested one of my friends Khaya Maroba during a discussion we had as friends over WhatsApp this week as we debated and discussed the matter.
“In that way we as tax payers would not be wholly funding their ‘rehabilitation’. They are part of the dead weight,” Maroba concluded.
Increasingly, Uncle Azania is waking up every morning to go to work to fend his family, but at the end of every month it increasingly feels like there's always an unpaid bill, electricity this month, the car last month, the school fees the month previous and so it goes.
The situation is starting to get dire and desperate. South Africa needs sustainable economic growth as in yesterday to produce the jobs.
We need to get our young people off the streets and onto the factory floors and offices, working. We need more people working and less young people queuing for grants, but we do need to help those who cannot for whatever reason.
We simply cannot be that rich uncle who lost it all, but if things don't change in a hurry, the writing is on the wall.
As Mbeki often asks, what is to be done?
Sihle Mlambo is the content manager for Business, Lifestyle and Sport at IOL.
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