The release of South Africa’s national budget has descended into an unprecedented fiasco. Never before in the country’s democratic history has a budget been postponed.

However, this postponement is not just a disagreement within the Government of National Unity (GNU). It is a direct result of the ANC’s arrogance in not recognising the political reality that it no longer holds a majority and cannot bulldoze unpopular policies through Parliament as it once did.

Even more telling is that the ANC pushed ahead with the Vat hike despite several GNU coalition partners publicly opposing it during the past week.

That decision was not just miscalculated – it was arrogant. It showed that the ANC still sees itself as the sole authority in government, disregarding the need for consensus in a coalition setup. This blind overreach has now backfired spectacularly.

I understand why the budget was postponed. The media receives a copy of the speech about an hour before the finance minister presents it in Parliament.

At first, I was merely agitated when I read through it. As I continued reading, I became progressively angrier. It listed the same old promises and plans for economic growth that have been recycled year after year – incredibly frustrating considering that South Africa’s economy has not grown by more than 2% since 2013.

But then, on page 13 of the 23-page document, came the shock: the proposed two percentage point Vat hike. One of the most aggressive tax increases in recent history slipped into the budget as if it were a routine adjustment. The paragraphs read:

Madam Speaker, since October, several new and persistent spending pressures in health, education, transport, and security have emerged.
After careful thought, the government has decided it is necessary to support these pressures in order to properly fulfil our service delivery mandate.
In assessing our options, we were confronted with three choices:
– Continue to cut funding to essential services that our people depend on.
– Take on expensive debt that would burden future generations.
– Or make strategic tax adjustments to secure our nation’s future.
After careful analysis of the trade-offs, we have chosen the most responsible path forward.

We propose to raise the Vat rate by 2 percentage points to 17 per cent – a necessary step that will enable us to:
– Fund public sector wage increases for our civil servants.
– Expand early childhood development opportunities for our children.
– Retain the teachers, doctors, and essential frontline workers that serve our communities.
– Revitalize our commuter rail system to better serve working-class families.
– Provide above-inflation increases to social grants for our most vulnerable.

Madam Speaker, this decision was not made lightly.

We thoroughly examined alternatives to raising the Vat rate and the policy trade-offs involved, including increases to corporate and personal income taxes.

However, these would generate substantially less revenue while potentially harming economic growth and job creation.

Raising corporate taxes, for instance, will discourage investment and job creation, ultimately yielding less revenue in the long run.

Opting to take on more debt, when our credit rating is currently at junk status, would lead to even higher interest payments, ultimately reducing our future spending capacity and raising the risk of further rating downgrades.

More debt would also push up interest rates. That would hurt households paying back loans and businesses looking to expand their operations, dampening investment across the economy.

The Vat increase, by contrast, represents the most efficient and broad-based approach. It keeps our country competitive with international standards.

Vat hikes follow a crisis

Historically, Vat increases have been associated with economic crises. The last hike, from 14% to 15% in 2018, was imposed after state capture under Jacob Zuma. That Vat increase became a defining moment of Zuma’s presidency, a symbol of the damage done by his administration.

Now, Ramaphosa faces the same fate. His government has not only failed to reverse the economic damage of the Zuma years, but in many ways, things have worsened.

This Vat hike was not just another tax but an admission that historic ANC policies have failed to generate meaningful economic expansion. If South Africa’s economy were growing, tax revenue would increase naturally through business growth and job creation.

This crisis will be remembered. Just as Zuma’s presidency became defined by state capture and the 2018 Vat hike, Ramaphosa’s legacy will now be tied to the 2% Vat hike that never was – at least not initially.

The next few weeks will be very interesting indeed. Even more so will be the budget that will eventually be presented to parliament.