Government doesn’t need tax hikes when it has your pensions

Former statistician-general Pali Lehohla says South Africa should borrow from itself— suggesting tapping pensions and the JSE instead of the proposed tax hikes such as the highly contested VAT increase.

However, the country has so far avoided going this route because “we know we will steal the money,” he said.

In the initial budget, Godongawana proposed a two-percentage-point increase in VAT, among other things, which was met with strong resistance from the DA and other opposition parties. 

This opposition forced an unprecedented last-minute cancellation of the February budget speech, the first time the presentation had been cancelled over such a disagreement in 31 years. 

Godongwana wants to use the VAT increase to fill a R60 billion shortfall in government finances, which is needed to cover key expenditures.

These include civil servant salary increases, infrastructure projects, school feeding programs, early childhood development, and an extension of the R350 Social Relief of Distress (SRD) grant. 

According to Godongwana, the SRD grant alone requires an additional R35.2 billion in funding to be extended until March 2026.

As it stands, Godongwana is now expected to present the revised budget to the nation on Wednesday (12 March).

However, those against the VAT hike argue that South African consumers cannot afford the increase, and it would hit the poor the hardest. Risks to interest rates could be a secondary effect.

Several stakeholders have suggested alternatives to the increase in VAT, which include a wealth tax, an increase in corporate taxes, and a pause of government pension contributions.

However, others argue that these alternatives will drive major taxpayers out of the country, while the pause in contributions will only be a temporary fix to a reoccurring problem.

Former statistician-general Pali Lehohla agreed that the proposed hikes are not the answer and added that they would not address the country’s high levels of poverty and unemployment.

Tap pensions and the JSE

However, he suggested that the government borrow money from its domestic reserves, such as pensions and the JSE, like many other developing nations.

Speaking with Newzroom Afrika, Lehohla indicated that South Africa has enough resources to tap into instead of resorting to tax hikes or borrowing from foreign sources.

According to Lehohla, the government should tap into domestic resources such as pensions and the Johannesburg Stock Exchange (JSE) to fund its shortfalls.

“It’s not about the current thinking of borrowing money from elsewhere,” he said. “South Africa has one of the top 30 stock exchanges in the world, and it also has pension funds.

“In developed countries, governments don’t borrow from markets — they borrow from their pensions. South Africa can do the same,” said Lehohla.

Lehohla emphasised that the country has sufficient domestic capital to leverage. “The JSE is worth about R18 trillion, while government balances are around R2.2 trillion to R2.7 trillion.

“We [South Africa] have enough resources to borrow from ourselves — there is no need to increase taxes or anything of that nature.”

However, he noted that the real issue lies in poor consequence management. “We avoid borrowing from ourselves because we know we’ll steal the money,” said Lehohla.

“Instead, we [South Africa] go and borrow from someone else and steal their money — but the sovereign still ends up paying for it, whether it’s due to lax management or outright theft,” he added.

Lehohla said that the Zondo Commission’s findings underscore these governance failures, which have created the budget’s current situation.

“Until we confront these evils, we will continue to face these kinds of problems. This postponement will not be the last.”

As of Monday, it seems Lehohla’s comments could be coming to fruition, as the chances of the revised budget being postponed again seem more likely.

With just 48 hours remaining before a second attempt to present the budget in Parliament, reports indicate that the ANC and the DA have not agreed on the revised budget.

As a result, there is a strong possibility that the DA will not support the budget, forcing the ANC to seek backing from other parties, such as the EFF. Efforts to achieve an agreement during a special Cabinet meeting last week were unsuccessful.

A task team of ministers, led by Deputy President Paul Mashatile, convened earlier last Monday to evaluate options proposed by the National Treasury.

All these options included a potential increase in VAT at varying rates. Over the weekend, DA leader John Steenhuisen requested a phone call with President Cyril Ramaphosa to discuss the deadlock, but by Sunday evening, that call had not yet taken place.