FinMin Godongwana set to re-introduce budget delayed by VAT dispute

South Africa is on the brink of a crucial fiscal and tax policy decision with the much-anticipated national budget speech looming. The decisions to be made not only stand to shape the country's economic prospects but also have the potential to redefine the history of the Government of National Unity. The spotlight is firmly on the proposed VAT increase and tax bracket adjustments, presenting a complex challenge of redistribution for the government. While the aim is to provide relief to lower-income households, there is a looming strain on middle and high-income earners who are already shouldering a significant tax burden. The debate surrounding the budget and tax policy choices is gaining momentum, with experts weighing in on the implications for businesses, investors, and consumers. Keith Engel, CEO of the South African Institute of Taxation, and Frank Blackmore, Lead Economist at KPMG, recently shared their insights on CNBC Africa. Keith Engel highlighted the critical question facing the government - whether to sustain the current trajectory of fiscal policies or opt for a change. He emphasized that the VAT increase is a consequence of the government's desire for continued growth and expansion of social welfare initiatives. Engel emphasized the need for efficient government spending and the importance of directing resources towards sectors that drive economic growth and development. He cautioned against further tax hikes without a clear demonstration of improved efficiency and effectiveness in government spending. Frank Blackmore echoed Engel's sentiments regarding the need for efficient tax policies and emphasized the importance of evaluating existing revenue streams before implementing VAT hikes. While acknowledging that VAT is an efficient tax from an economic perspective, Blackmore stressed the need to address deficiencies in how tax revenues are utilized to benefit the economy and society at large. The discussion delved into the challenge of justifying the VAT increase and the need for the government to realign its budget priorities to promote economic growth. Engel suggested that focusing on core areas such as infrastructure development could justify tax increases if accompanied by a commitment to eliminate wasteful spending and enhance efficiency in government operations. Both experts highlighted the critical role of trust and stability in government policies to drive business investment and economic growth. They emphasized the importance of creating a conducive business environment, characterized by policy certainty and long-term planning horizons. The call for courageous leadership and ideological shifts in policy-making was underscored as essential for unlocking economic potential and attracting investment. In conclusion, the discussions on CNBC Africa shed light on the complex fiscal and tax policy landscape in South Africa. The looming budget speech holds significant implications for businesses, investors, and consumers, emphasizing the need for strategic decision-making and a focus on sustainable economic growth.