May 22, 2018

Does Parliament hear what the people say about the 2018 Budget?

A total of 42% of our elected representatives gave the thumbs up to the 2018 Budget, despite 85% of the organisations and individuals who made submissions at the mandatory public hearing sounding a very clear no.

If you consider that of the 27 public submissions presented to the Standing Committee of Finance three came from umbrella bodies, each representing multiple organisations and individuals, which dramatically increases the widespread public rejection of the proposed Budget.

It brought to about 150 the number of civil society organisations and ordinary citizens who made it clear to Parliament that the Budget in the form proposed by the former Minister of Finance was unacceptable to the public.

That does not take into account a single submission from media group Amandla in the form of a petition which had 47,000 signatures. Amandla refers to itself on its website as a media and communication project that believes in “critical analysis and open dialogue”. It publishes a monthly left-wing magazine.

The oncrease in indirect tax and the government spending cuts are “self-inflicted”, “unavoidable” and “unfortunate”.

Only four submissions announced that they accepted the proposed Budget, with three of them expressing reluctance and qualifying their support by describing the increase in indirect tax and the government spending cuts as “self-inflicted”, “unavoidable” and “unfortunate”.

The South African Institute of Chartered Accountants (SAICA), the South African Institute of Tax Practitioners (SAIT), PricewaterhouseCoopers (PwC) and Business Unity South Africa (BUSA) were the only voices at the Joint Committee hearing that declared that under the current fiscal constraints the former minister of finance was left with no alternative.

SAICA went so far as to call it a “bold move” by a minister who had to take drastic steps to halt South Africa’s perilous slide “further down this slippery debt slope” even though it was not politically strategic to do so.

Given that this was a Minister who was already packed and ready to go it clearly was politically very strategic. Giving Gigaba the task of breaking the unpopular news would allow the new Minister of Finance the advantage of entering with a clean slate.

The minority view in support of South Africa’s first regressive Budget since the advent of democracy was restrained and full of qualifications. The term “self-inflicted” came up, and without mentioning the words “state capture” it was made clear even by those few supporters that much of the Budget’s content was the result of political actions of the recent past.

Many public submissions stated explicitly that they required more time to consider the proposed Budget and asked MPs to raise certain aspects for debate before passing the Bills.

Not possible, Chairperson of the Committee Yunus Carrim explained at one point in the day-long hearing of the Standing and Select Committees on Finance. He explained that in terms of the Money Bills Amendment Procedure and Related Matters Amendment Act both Houses of Parliament have to finalise the fiscal framework within 16 days of the Budget being introduced to Parliament.

The Budget Process leaves little time for public or even parliamentary intervention. The tax year begins on 1 March and only after the fiscal framework is adopted can other aspects of the Budget, such as the Division of Revenue and Appropriations Bill, be processed. These must be finalised within 35 days of the adoption of the fiscal framework.

The Joint Committee was “in the final stages” of amending the Money Bills Act with the aim of giving both the public and Parliament more time to process the Budget, Carrim said. What he did not mention was that the Budget Process was unexpectedly speedy in parliamentary terms and the final stages of law-making can drag on for a long time. However, Carrim said the Joint Committee was aware of and sympathised with concerns about the lack of time available for organisations and the public to prepare submissions for the fiscal framework hearings.

Not unexpectedly most objections were about the proposed 1% VAT increase, even though some accepted that faced with a burdensome budget deficit crisis there were few alternatives sources of revenue.

But there was little support for the notion that the fiscus could not be replenished by, to use SAICA’s own term, “flogging the dead horse of PAYE”. There was little sympathy for the argument that nothing more could be squeezed out of the highest earners, at least without repercussions for investment. The feeling seemed to be that annual increases in Personal Income Tax should be escalated, even though it was recognised that in recent years this had not succeeded in bailing out the fiscus.

The call was for lateral and imaginative thinking that went beyond personal taxation, and was directed at property taxes or wealth taxes or any means which would be preferable to regressive taxation in a country bogged down in unacceptable poverty.

How could indirect tax pay for the “new dawn” that SONA had promised? Not unexpectedly the proposed 1% increase in VAT came under consistent attack. The message was repeated over and over that it would hit the poor far harder than the rich.

The fuel levy was also singled out for its regressive effects on those already suffering apartheid’s enduring spatial legacy, which left them with a disproportionate travelling costs.

There was agreement that tax alone would not bail out the fiscus. The view that came from all sides, including the former minister’s although he appeared to miss the irony, was that tax morality on the expenditure side is as critical as on the revenue side. Tax defaulters and those who had ravaged the fiscus needed to be held accountable for South Africa’s first regressive tax regime since democracy.

Here follows a random selection of the best and worse inputs made at the Committee hearing, sourced from the Parliamentary Monitoring Group at http://bit.ly/2oYhKiu

The South African Institute of Tax Practitioners (SAIT) believed a reasonable balance was struck between tax increases, public expenditure cuts, budget deficit/government borrowing and funding fee-free higher education and training for poor and working-class students.

Personal income tax collections for 2017/2018 was expected to undershoot the target by R21.1 billion. Corporate income tax rate was high in comparison with global trends and decreases competitiveness whereas the VAT rate is relatively low compared to Africa and the world. The VAT increase had the least detrimental effect. It affected the poor and the rich roughly proportionally but there was need to mitigate the effect of the VAT increase on the poor. SAIT proposed the review of the list of zero-rated basic food items as many essential food items consumed by the poor are not zero-rated and many zero-rated food items benefit the rich.

PricewaterhouseCoopers (PwC) blamed the government wage bill for increased expenditure. PIT as a source of additional revenues had been exhausted, at about 2.5 times higher than developing country averages. There was no choice but to increase VAT to raise tax revenues, but zero-rating was poorly targeted and would benefit the wealthy. PwC believed there was need for more targeted measures to cushion the poor, for example food stamps.

Fiscal Cliff Group warned compensation of employees, social assistance payments and debt-service costs 70.4% of tax revenue in 2018/19 up from 55% in 2007/08. Bonus payments for executives at SOEs and government institutions must stop and government spending must change with a cut in the size of the executive ‑ each Ministry costs between R30 million and R50 million per annum ‑ and an employment moratorium in the civil service.

Cosatu rejected and condemned the VAT and fuel hikes in the strongest possible terms. It said government had been bold in taxing workers and had avoided increasing taxes on the rich, company tax or luxury goods and imports taxes. Politicians and their friends have looted the state and now nurses, teachers, police officers and other lowly paid workers are forced to foot the bill. The government is using the back-door to hike tax of working and middle class families by minimising inflation adjustments for tax brackets at below inflation levels for the third year in a row.

Cosatu called on Parliament to fast-track progressive tax proposals from the Judge Davis Tax Commission; cancel the VAT tax hike; increase company taxes to 30% or 32% which should generate an additional R13 to R26 billion in revenues; increase estate and inheritance taxes; increase income tax for incomes above R1 million to 45% which should generate an additional R5 billion; impose a land tax to aid the process of land redistribution; zero-rating of medicines, water, domestic electricity and public education; tax firms that pay below the statutory minimum wage and distribute such tax proceeds back to the workers.

The National Union of Metalworkers of South Africa (NUMSA) expressed concern that the proposed tax increases were coming at a time when citizens were still trying to cope with the unacceptable 5% increase in Eskom tariffs. The progressive increase of the old age grant by R90 in April and R10 October and the child support grant to R400 (April) and R410 (October) will do very little to cover the harm that would be caused by the hike in VAT.

The Organisation of Undoing Tax Abuse (OUTA) strongly urged government to commit to zero tax increases in the next financial year as increased VAT was not sustainable. Large scale, centralised social welfare initiatives such as National Health Insurance and fee-free higher education increases the burden on taxpayers. Government must systematically shift the yoke of sovereign debt onto its own shoulders.

Parliament Watch was concerned about the short time-frames for public input, the lack of access to comprehensive information, and the time to comprehend, communicate, consult and develop positions on the proposals. The majority of people affected by the proposals and decisions – those living in poverty and working class people, as well as the organisations seeking to represent the interests of those parts of society ‑ are unable to “meaningfully” engage in the process. If it is not able to extend the period of decision-making regarding the proposal to increase VAT, Parliament Watch submitted that it should be rejected by Parliament at this time to enable the required public participation.

The Civil Society Coalition, which had the support of 30 organisations, rejected Treasury’s claim that VAT is “least detrimental to growth”. A government budget was not the “same as a household budget” and Parliament must withhold approval of the tax proposals, in particular the increases to indirect taxes. The Coalition asked National Treasury to make available, in full, the evidence upon which it based its claim that increasing direct taxes (such as PIT and CIT) is more harmful to economic growth than increasing indirect tax.

The Quaker Peace Centre (QPC) said research consistently proved that the poor pay a higher share of their income in VAT than the rich due to the Marginal Propensity to Consume (poor people spend a higher proportion of their income, while rich people save a higher proportion). Increasing VAT was a regressive step. QPC believed that the issue of VAT increases should be preceded by a period within which civil society can engage with government and seek creative solutions to minimise the negative impact on the poorest South Africans.

Mr Guy Harris, Education & Governance Activist, says education is the key driver of reducing inequality. Early Childhood Development (ECD) is the base and free tertiary education was populous and too late. Job creation, via medium sized business, was key to reducing unemployment and jobs should be upskillable.

Pietermaritzburg Agency for Community Social Action (PACSA) called on Parliament to withhold its approval for a hike in VAT. A 1% hike in VAT was, in real terms, a 7% increase in the VAT rate (15-14 = 1. 1 / 14 X 100 = 7%). The implications of a 15% VAT rate on food, electricity and water (amongst other important basic needs) together with the 52 cents per litre on the fuel levy will have severe implications for millions of South African households and the measures proposed to mitigate the negative impact of the VAT hike would not protect the working class.

The food baskets of low-income households include more VAT taxable foods than zero-rated foods, revealing a lack of understanding of what people eat. The only way in which households can escape the impact of VAT was if all foods are zero-rated. Food price inflation is highly volatile and unpredictable as seen by the impact of the recent drought. For example, between November 2015 and September 2017 the cost of the PACSA Food Basket increased by 16.1%, and it is not possible to accurately predict the extent of the negative impact of raising VAT for working class households.

#UniteBehind, representing more than 20 voluntary associations advocating for justice and equality, called for taxes on super-wealth and international financial transactions, punishment for criminal and corrupt transfers of money from South Africa and the eradication of racial and class domination. UB objected to the very limited timeframe for thorough engagement which undermined the potential for educational and consultative processes within affiliate organisations. UB wants to see a strategic plan for Treasury, SARS and our law enforcement agencies to recover the billions of stolen monies and outright looting of Eskom, Prasa and Transnet, among others.

It cited a travel survey in 2013 which found that 68% of travel by public transport was by minibus taxi, which is not subsidised, zero rated or exempt. Two-thirds of households in the lowest income quintile spent 20% of their monthly household income on public transport and it is clear the poor will suffer massive costs under the proposed budget.

Nehawu’s contention is that this budget is anti-poor, lacks courage, boldness in tackling social inequality, poverty and ever growing levels of unemployment. It constitute a radical departure from the much celebrated SONA which promised a “new dawn” of radical socio-economic transformation; a macroeconomic framework that is aligned with growth through redistribution, wherein manufacturing, reindustrialisation, and active social policies such as comprehensive social security, and fee-free higher education should be the guiding pillars of South Africa’s economic policy making. The 2018/19 budget must be rejected by this Parliament, in particular its regressive proposals to increase VAT.

Nehawu said Treasury is still stuck in the old Neoliberal rationale that sees the compensation of employees as wasteful consumption expenditure. The fiscus is suddenly placed under pressure because of the growing demands in post-schooling education but according to Nehawu this is partly because of this neoliberal dogma that see public services as consumption when it fact the opposite is true – such spending is actually investment in human development and actually makes economic growth sustainable and contributes towards social cohesion.

Sean Muller, University of Johannesburg’s Public and Environmental Economic Research Centre, says the Cabinet sub-committee decision on R85billion in expenditure cuts over the medium-term does not reflect good public finance management. It remains unclear what assumptions were made on “free higher education” and how that decision was aligned to the proposals that were “irregularly” announced by then President Zuma. More information is required from the Executive in this regard.

Amandla! States in its petition, We the undersigned completely reject the proposed VAT increase and call on you as our elected leaders to scrap the VAT increase for the 2018/2019. The Standing Committee on Finance should consider each of the undersigned names as an individual submission which categorically rejects the VAT increase in the Fiscal Framework and Revenue Proposals. (47,000 people signed this petitition.)

Makukhanye Rural Movement of small scale farmer’s association, women’s forum and youth urge government to take serious action toward land reform and redistribution and propose that government provide the poor with fertile plots of land for productive use for self-sustainability.

The Southern African Catholic Bishops’ Conference understands the reasons behind the increase in VAT. The gross mismanagement of the economy over the last number of years, along with the looting of state resources that occurred under the Zuma administration, have exacerbated the structural weaknesses in our economy. These factors, together with global factors beyond our control, have resulted in our country slipping ever deeper into debt. Further borrowing would have been irresponsible, and it was thus necessary to raise revenue by increasing the tax burden. However, it is deeply regrettable that it was decided to opt for a regressive tax that will have its most burdensome effects on poor and struggling families. It is unlikely that middle-class and wealthy South Africans will notice the effects of the one percentage point increase, but for those already living in or near poverty it could mean the difference between putting food on the table or buying medicine, or school shoes, or having taxi-fare to look for employment.

We also note that the increase is being referred to as a “one per cent increase”. It is in fact an increase of 7.14%, which is well above the inflation rate, and will itself become a driver of inflation. It needs to be pointed out that the sum that will be raised from this increase (approximately R22 billion) is considerably less that the amount that is lost to the fiscus every year due to corruption in government procurement.

Shukumisa Coalition, a network of 75 organisational and 11 individual members working on sexual violence, warns many of its members are experiencing enormous financial challenges that negatively affects their very important work on sexual violence. The proposed increase of VAT will worsen this situation and their work will be further affected, resulting in more people, especially women and children, not getting the services they need to recover and heal from sexual violence. The Shukumisa Coalition would welcome the opportunity to further debate the VAT issue.

The Rural Health Advocacy project is concerned that the proposed 1% increase in VAT has the potential to reduce the real disposable income of poor communities and there is considerable danger that this will increase poverty and inequality. While it acknowledges that these risks are somewhat mitigated by a 1.5 % real increase in grants as well the existing of zero rating of 19 food items, the proposal will negatively impact rural households. Zero-rated goods do not necessarily make up the majority of low-income household’s food consumption needs. The current basket of zero-rated goods is not, in all cases, optimally targeted. For example, zero-rating on frozen vegetables and “basic” fresh vegetables benefit the poor but zero-rating on more expensive fresh vegetables does not, while canned vegetables, consumed by the poor, are not zero-rated. The current basket of zero-rated goods excludes a number of goods consumed heavily by the poor, for example, white flour, canned beans, margarine, chicken, polony, candles, and soap.

As food prices rise households drop nutritious food from the plate, and substitute these with relatively cheaper fats, salts and sugars that are not zero-rated. Further, as some zero-rated items (like dry beans) have longer cooking times, a rise in fuel prices can shift consumption away from these.

We are further concerned by the proposed increase in the fuel levy as rural communities cover large geographical areas, and in the absence of planned patient transport, rural communities have to incur significant out of pocket costs to access health. Increased transport costs will impact on the health seeking behavior of rural communities as communities’ delay or opt out of essential health care.

 

BUSA is broadly supportive of the taxes identified for increase in the Budget, including the increase in VAT by 1%. This is forecast to yield R22.9 billion in the 2018/19 financial year. While BUSA recognises that consumers will come under greater pressure with a VAT hike, we believe that this is the least damaging of available options. Treasury’s decision to ensure that a suitable proportion of the revenue generated from the VAT increase will be directed towards real increases in social grants is welcomed. However, BUSA proposes that consideration be given to accompanying the VAT increase by a further zero-rating of basic goods.

Compiled by Moira Levy

Sourced from the Parliamentary Monitoring Group.

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  • Author: Moira Levy

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