Guest Column

Anti-poor budget cuts short Ramaphosa honeymoon

2018-02-22 11:40
President Cyril Ramaphosa after delivering his maiden State of the Nation Address (Photo: Jeffrey Abrahams, Gallo Images)

President Cyril Ramaphosa after delivering his maiden State of the Nation Address (Photo: Jeffrey Abrahams, Gallo Images)

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Lukhona Mnguni

The Cyril Ramaphosa honeymoon was abruptly cut short when Finance Minister Malusi Gigaba presented a budget for 2018 that is intended to harm poor people, as well as the middle and working classes.

This year's budget speech cut short Ramaphosa's rhetoric of "a new dawn", as our pockets will definitely feel the pinch when the new tax measures kick in come April 2018.

There is no doubt that many in society will write, advocate and demonstrate against the proposal for increases in VAT from 14% to 15%. There remains a zero-rating of basic food items such as maize meal, brown bread, dried beans and rice, as outlined in the budget speech. Even that knowledge is not enough relief given that the increase in fuel levy by 52c and the increase in VAT will definitely drive up production and transportation costs of goods and services.

Since 2015 we have been experiencing increasing poverty levels as a country. These tax increases are nowhere near assisting with poverty alleviation. This is a truly anti-poor budget that will cause more harm and discontent in society.

Many are saying that government cannot afford to upset the private sector and increase the corporate income tax rate even if from 28% to 29%. Others are even overlooking the fact that there are countries (like Brazil, India, Germany, Japan and others) with higher corporate taxes than ours.

We used to be at 37.8% in 2001 and gradual decreases were effected until an abrupt 6.55% decrease was effected in 2013 from 34.55%.

The logic that business has a superior voice will hold until a taxpayers' movement begins in this country, making a number of demands. One crucial demand is for government to cut down on its own excesses ranging from high salaries for politicians to benefits derived from the state by high income earning public servants to unnecessary tendering for certain procurement such as stationery.  

Cost capping measures are definitely needed in our procurement processes. We cannot have a government that behaves as though it does not know the prices of goods and services and allows bizarre mark ups from service providers.

The euphoria that swept through our country since the election and swearing in of Ramaphosa as president of South Africa nearly made us forget that the government remains the same – ANC led.

This government has demonstrated over the past almost 23 years that it is incapable of charting a social justice engineering programme. It has also demonstrated that it succumbs easily to the demands of business and punishes the very poor people it claims to be championing their cause for a better life.

It is a government that has presided over great ineptitude and institutionalisation of corruption from the local up to the national spheres of government. These are the practices that have over the last 10 years led us to a path where we now are to pay R180.1 billion servicing our debt. A burden that must now rest on the shoulders of ordinary citizens of this country.

Ramaphosa wields no magic wand – even if he postures in that fashion. Words have little meaning when not followed by action. It is true that Zuma had created great cynicism over government but his enablers are comfortably behaving like messiahs that have rescued the nation from the grip of looters receiving political protection from Mahlamba Ndlopfu.

In these trying times of increasing poverty, unemployment and inequality, corporate tax should have been increased to cushion the poor. It is true that business could have retaliated by placing a mark-up on the cost of goods and services – such is the unpatriotic nature of business and its inability to be part of driving social justice.

Business has in recent years slowly reverted to the archaic belief advanced by Milton Friedman that "the business of business is business". It is archaic because there has been a strong case made for a much more redistributive tax regime – cushioning the poor and taxing the rich (high income earners and corporates).

Gigaba made a commitment that "vulnerable households will also be compensated through an above average increase in social grants". This will drive child support grants from R380 to R410 a month by October 2018. Guess what, without VAT child support grants increased by R20 in 2017. So there is only R10 being given to over 10 million recipients of child support grant to cushion them from a life changing VAT increase?

Likewise the increase on the old age and disability grants only differs by R10 from the 2017 increases. Therefore this budget has done nothing to protect the vulnerable from the fuel levy and VAT increases.

Interestingly, on another important matter that could still drive up the cost of living, Eskom, both Ramaphosa and Gigaba were mum. Gloating about a change of the board and a firing of management is not enough. Their speeches said nothing to allay the fears of employees whose pension funds were used to provide a R5 billion bridging facility to Eskom. No indications as to where the other R15 billion desperately needed by Eskom will come from.

Inevitably, Eskom will apply for exorbitant energy tariffs due to high debt exposure and need to clean up its balance sheet. The worst is yet to hit us as a country and this "new dawn" brigade does not seem to have compelling ideas on how to return us from the brink of economic collapse.  

President Cyril Ramaphosa declared 2018 the year of summits, commissions and consultations. There are no concrete plans in place to arrest this economic collapse in the short-term. These consultative forums make one conclude that Ramaphosa is on electioneering mode – wanting to sustain a charm offensive and a PR campaign of endearments to society. This will not be enough. Focusing on the low hanging fruits of talking tough on corruption, state capture and be seen as removing deadwood in Cabinet will only take him so far – which is not that far much.

It is a compelling vision and a master strategy of execution that South Africa needs. We need to rethink so many things, including how we are currently extending social security. Following the SONA and budget speech of the "new dawn" we are none the wiser on new mechanisms to generate money to fund free higher education, even though this was promised to the public.

Indeed at times it is true that "the more things change the more they stay the same".

- Lukhona Mnguni is an independent political analyst.

Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.

Read more on:    cyril ramaphosa  |  vat increase  |  budget 2018
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