Budget delay opportunity to cut VAT, and BEE premiums – IRR
The unprecedented delay in tabling the budget offers an opportunity for a profound rethink of fiscal priorities in South Africa.
The mooted proposal to hike Value-Added-Tax (VAT) to 17% hit a brick wall of political opposition. In light of this, the IRR is sending all members of Parliament’s two finance committees its Blueprint for Growth proposal, titled Cut VAT & BEE Premiums.
The report points to evaluations of a potential R150 billion in savings that could be achieved by reaping the “Zondo Dividend”, named after the Zondo Report’s recommendation to derive “maximum value-for-money in the procurement process” as opposed to spending extra on BEE preference premiums.
The IRR report being shared with Parliament makes three simple calls:
- make BEE premiums transparent in the budget;
- cut BEE premiums to R0; and
- cut VAT to 11.5% without increasing debt.
In the bargaining process that is to follow, the first question is whether Parliament will finally force transparency on how much BEE premiums actually cost.
Senior treasury official Mr Willie Mathebula has repeatedly explained that BEE “preference premiums” are “capped at 11%” for contracts over R50 million and capped at 25% for contracts below R50 million. But despite repeated requests, neither Mr Mathebula, nor anyone else at treasury, has been willing to say how much BEE premiums cost.
Moments after the budget delay was announced, Gabriel Crouse sought out ANC Secretary General Fikile Mbalula and asked him whether it was a good idea to cut BEE premiums in procurement.
Mbalula said: “We believe that government needs to take everyone into confidence around the issues of disagreement. Just to take one issue and run with it is incorrect. We know that VAT is the major question, and that is what we as the ANC think needs to be considered holistically.”
But, says Crouse, taking everyone into confidence around the issues of disagreement should include telling the public how much BEE premiums cost. Only then can supporters and critics debate whether BEE premium cuts are appropriate, or not.
He told Mbalula: “The reason we singled BEE premiums out is because with all of the other options we know what the cost is, where with BEE premiums we don’t know what the cost is. Isn’t that a problem?”
Mbalula answered: “I wouldn’t say so. Let’s wait.”
But there can be no delay to fiscal transparency, Crouse argues. Section 216 of the constitution requires “transparency and expenditure control” from Treasury, precisely for moments like this historic one.
As South Africans debate whether taxes should be hiked or cut, how the deficit should be managed, whether SOEs should be bailed out some more or cut, numbers matter. The budget is a compromise cashed out in numbers.
However, the one number South Africa does not have is an official account of BEE premiums. Both critics and supporters of BEE premiums can finally remedy this longstanding dereliction of constitutional duty during the coming bargaining process by ensuring that the first point of agreement is transparency.
As Mr Mbalula said, the “government needs to take everyone into confidence about the issues of disagreement”.
BEE premiums are a matter of grave disagreement. Research by the IRR, published in its report, indicates that a majority of all South Africans, and a majority of black South Africans, support cutting BEE premiums to R0.
Furthermore, multiple pollsters including Afrobarometer and the Social Research Foundation indicate that there is a very high appetite to cutting taxes. If BEE premiums are cut to R0, then VAT can be cut by R100 billion, leaving cash in the pockets of tens of millions of people who know how to make each rand go as far as possible.
Media contact: Gabriel Crouse, IRR Fellow Tel: 082 510 0360 Email: gabriel@irrlegal.org.za
Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za