Budget: Finance committees approve fiscal framework at 11th hour

Parliament’s finance committees late on Tuesday approved the fiscal framework tabled by Finance Minister Enoch Godongwana in his contentious 2025 budget, paving the way for it to be adopted by vote in the National Assembly on Wednesday.

The development came as a result of the lifeline ActionSA threw the ANC after that party’s lengthy negotiations with the Democratic Alliance (DA) on support for Godongwana’s proposed one percentage point VAT increase, staggered over two years, came to nought.

ActionSA MP Alan Beesley at first proposed that members of the legislature’s standing and select committees on finance approve the fiscal framework but simultaneously amend it to veto the VAT hike and allow the minister time to find alternative ways of raising the revenue it would have afforded him.

But several MPs pointed out that the committees had a mandate to approve or to amend the fiscal framework, but in law it could not do both at once. 

There had been a counter proposal from DA finance spokesperson Mark Burke to amend section 6.28 of the framework to strike down the VAT increase and commit the minister to reduce spending annually over the medium-term by the exact sums the hike had been intended to raise.

For several hours it seemed as if the committee was headed for a photo-finish vote between the two competing proposals. At the same time, political horse-trading continued elsewhere and it was plain that MPs were moving slowly to allow this to unfold and their instructions to be revised accordingly.

In the early evening, ActionSA changed its semantics to get around the legal obstacles. 

It proposed that instead of an amendment to the framework, the report reflect a recommendation to the minister that he find alternatives to a VAT increase, and do so within 30 days.

The ANC welcomed the proposal, and the Inkatha Freedom Party (IFP) agreed to support it. It carried with their collective six votes in the committee, making a vote on the DA’s proposal redundant.

Burke said the outcome was an injury to coalition politics because the ANC had gone outside the 10-party government of national unity to find support for the fiscal framework. But he said it was above his pay-grade to say whether this may prompt the DA to pull out of the coalition.

“The DA condemns the sell-out tactic by ActionSA, which has worked with the ANC to adopt the budget and has condemned the poorest South Africans to a higher cost of living,” the DA said in a statement.

It said ActionSA had “shamefully shut down the required spending review” for which the DA had pushed in its negotiations with the ANC. Those continued between the leaders of the two parties, President Cyril Ramaphosa and John Steenhuisen, for several hours on Tuesday after they failed to reach an accord over the weekend.

The DA was prepared to countenance a VAT increase, but on condition there would be a comprehensive review of state spending, coupled with an amendment to the Expropriation Act and a commitment to collective decision-making on fiscal policy.

The ANC instead made a deal with Rise Mzansi to allow the parliament’s watchdog standing committee on public accounts, chaired by party leader Songezo Zibi, to oversee a six-month spending review.

In return, the party will vote along with the ANC, IFP, ActionSA and other smaller parties within the unity government on Wednesday.

Labour union federation Cosatu, which has firmly opposed a VAT increase as anti-poor and politically toxic, welcomed the committee’s adoption of the fiscal framework, with the proposed recommendation to find an alternative.

“It is a bit messy, but it achieves the objectives which is good,” said Cosatu’s parliamentary coordinator, Matthew Parks.

“My understanding from the meeting is that all parties have agreed to reject a VAT hike, to reject the PIT [personal income tax bracket creep] and that within 30 days the treasury must come back with an alternative to those. It is not elegant, it is a difficult thing because we have deadlines.” 

Parks was referring to a 16-day deadline in the Money Bills Amendment Procedure and Related Matters Act for the committees to report to the National Assembly on the revenue propopals.

He described the 30-day period imposed on the minister to look for alternatives as “extra injury time”.

“So we hope that parliament’s decision on no VAT hike, no PIT will be honoured,” he said, adding that should the treasury fail to do so, the legislature could proceed to amend the fiscal framework to prevent both a VAT increase and tax bracket creep.

The question is how the legislature would do so if Godongwana a month from now said he had tried but failed to find alternatives, and the ANC were to back a decision by the minister to stay with the text of the budget he tabled on 12 March.

Godongwana in his budget speech that day told the National Assembly that he had “thoroughly examined alternatives” to the tax measures, but none were workable.

Beesly suggested to the Mail & Guardian that if the minister failed to heed the recommendation in the committees’ report, his party would turn to the constitutional court.

Its proposal, which was written into their report to the assembly, reads as follows.

“The fiscal framework tabled by the minister of finance is supported subject to the strict condition that national treasury facilitates the receipt of substitute revenue proposals, together with corresponding expenditure savings, that will form the basis of an alternative revenue proposal instead of:

“a) the proposed 0.5 percentage point increase in VAT for the 2025-26 financial year, effective 1 May 2025, in respect of which the committee has expressed serious concerns; and b) the failure to adjust personal income tax brackets in line with the higher of the actual CPI inflation rate for 2024 or the projected CPI inflation rate for 2025 to prevent bracket creep.

“Furthermore, the committee recommends that the alternative revenue proposals and expenditure savings to balance the R28 billion shortfall — which must effectively suspend the proposed increases — be finalised and submitted to the national treasury to process and submit to the committee within 30 days for consideration and adoption of this report by the house.”

Joseph Maswanganyi, the chairperson of the standing committee on finance, stressed that the fiscal framework was not amended but that instead the committee had asked the finance minister to come up with alternative revenue proposals.

The distinction is important in terms of the National Assembly’s schedule, because an amendment would have delayed a vote because, in the law, the minister must be given two days to consider it.

A simple majority is needed for the fiscal framework to be adopted by the chamber.

The Economic Freedom Fighters and uMkhonto weSizwe party did not support the ActionSA proposal and indicated that they would vote against the framework on Wednesday. The numbers will be close, but it is expected that the Good party, the Patriotic Alliance, the United Democratic Movement, Al Jama-ah and the Pan Africanist Congress will vote with the ANC. 

The Freedom Front Plus has remained firmly opposed to any VAT hike but initially, privately made a similar proposal to adopt the framework but hold the increase in abeyance and allow Godongwana to find an alternative. It is understood that the ANC was amenable, but the DA was not.