Economist calls for Enoch Godongwana to resign

Economist Duma Gqubule has called for Finance Minister Enoch Godongwana to resign after his doomed two percentage point increase for VAT was shot down, forcing a postponement to the Budget Speech. 

The revised Budget Speech is now expected to be presented in March after Cabinet ministers in the Government of National Unity rejected the proposal during an emergency Cabinet meeting on Wednesday morning. This has forced the Budget Speech to be postponed for the first time. 

According to Gqubule, the 2% VAT increase made no sense whatsoever and it went against what the National Treasury had been saying over the past five years.

"In the next three weeks until March, I think that the Finance Minister should resign, there should not be a compromise around the VAT, no 2% and we must have a growth budget," Gqubule said. 

He was speaking on an EFF podcast which had been meant to unpack the now postponed 2025 Budget Speech. Other guests on the podcast included Professor Patrick Bond and budget analyst Tshidi Lecoance

"It's about incompetence, this organisation (National Treasury) has got too much power. It has more power than the President (Cyril Ramaphosa) and they cancel everything that the President says. My view of the President is that he believes that he is not competent enough to adjudicate on economic policy issues and he defers to Treasury," Gqubule said. 

"They don't consult anyone and they are unaccountable, we have to reign in the power of the National Treasury," said Gqubule.

The reason for the high debt ratio is Treasury incompetence and failing to grow the economy because the debt to GDP and debt service to GDP ratios, said Gqubule.

Gqubule said: "If you are not growing the bottom part of the equation it is going to increase. All of the measurements as a percentage of GDP are meaningless because the economy is not growing."

2% VAT hike is about Treasury's incompetence

Gqubule said that the two percentage point VAT hike was more about Treasury incompetetence and South Africans need to understand that.

He bemoaned how, from 2009 to 2024, the average GDP growth was 1.1% while the average for emerging markets (155 countries) was 4.4% and emerging and developing Asia 6.3% 

The debt ratio and the debt service costs, he said, were just symptoms that the economy does not grow and that the real solution was to get the economy to grow, which would then benefit the people. 

"After the 2018 VAT increase by (former finance minister) Malusi Gigaba, what was said that after 2020 was that they don't agree with this, we didn't raise as much revenue as we though we would and then they start saying every single budget they are opposed to a VAT increase becase the previous VAT increase did not work and left them traumatised," Gqubule said. 

"In 2024, they said they would not increase taxes because it is a weak economy, the GDP was lower and tax revenues were low. In 2023, they cited two United Nations studies that shows that it has a negative impact on the economy and on GDP."

Where must the money come from?

Gqubule said that tax increases except for the wealthy and illicit financial flows should be off the table. Cutting spending should be off the table.

Economist Patrick Bond said that if there were tighter exchange controls, the money could be kept in the country and reatin business earning but tax them higher.

The debt is so high is probably because domestic debt carries that a high interest rate, so you can bring down interest rate but again yiu will need exchnage controls to prevent the capital flight. 

Budget analyst Tshidi Lecoanca said that increasing tax should have been a last resort intervention.

Lecoanca touched on whether an allocation to the South African Revenue Service (Sars) to modernise their revenue collection systems could be an option instead of instead of increasing VAT. 

"For years there have been conversations around our tax base and how much wer are getting in revenues and how many leakages there are in the system. There has been advocacy around illicit financial flows and outflows from South Africa similar to the rest of continent in that issue. "

We are so taxed out and the reason for that is the most part, the everyday person is bearig and everyone is contributing to the fiscus except there are a few people who are not contributing their fair share, according to Lecoanca. 

"Civil society has been rallying around how do we strengthen our revenue collection to ensure that eveybody pays and contributes fairly," Lecoanca said. 

Gqubule said that the Unemployment Insurance Fund had a surplus of more than R100 billion and it could be used to stimulate the economy. During Covid-19, Treasury couldn't come up with a reason for the this suprlus so R60 billion was paid to 13.8 million people to support them during the pandemic.

"I looked at the Bugdet yesterday, there is still R137 billion in that kitty. We are arguing for example that we need to increase our public employment programmes and fund them through a big allocation from that R137 billion and also from the Employment Tax Incentive which is wasteful and is a social security for rich companies."

"Al these proposals have nothing to do with increasing and borrowing."

Gqubule said that he was doing calculations and the Governemnt Employees Pension Fund (GEPF) has accumulated since 2012 surplusses of R645 billion. In the last year year 2023/2024, the surplus was R58 billion. 

"There are resources that we can tap into within the family to finance the stimulus."

IOL Business