The 2018 Fiscal Framework and Revenue Proposals along with the Report of the Standing Committee on Finance was adopted in Parliament on Tuesday 7 March by a hefty 191 ayes to 81 nays, confirming yet again how the mood in Parliament so often fails to reflect the feelings of those citizens outside the precinct. By Moira Levy for NOTES FROM THE HOUSE.
First published by Notes from the House
The legislative process was followed to a T, including the necessary public participation allowing for citizens to engage with the proposed legislation before it appears before the House for a vote. It is worthwhile, and sometimes necessary, to remind ourselves that the principle of public participation is one of the central tenets of our People’s Parliament. It’s written into the Constitution and is what is supposed to make our democratic Parliament different to those that preceded it.
But you have to wonder, especially when it comes to the Budget when one day of public submissions are permitted and then largely ignored, where exactly public participation fits into the process.
This year, about 50 submissions from civil society organisations and individuals were made to the Standing Committee of Finance and its counterpart in the National Council of Provinces. Public consultation was completed in a single day. Yes, it was a long day and many voices were indeed heard, but given the time frame, can public comment really be expected to shape the legislative outcome that is voted about a week later?
It all happens within a matter of days. The minister briefs the finance committees. Three days later it is the turn of the Parliamentary Budget Office and the Financial and Fiscal Commission, followed the next day by public hearings. Another three days, and National Treasury responds, all in accordance with the statutory mandates, specifically section 8 (3) of the Money Bills Act. Civil society participants then reply to the submissions by Treasury and members of the committees have one last word.
For those more used to the pace at which Parliament usually works, it’s all rather startling – and highly questionable as to when and how public participation gets a look-in.
The race is on when it comes to passing the Budget because the business of Parliament can only officially begin when departmental funds have been agreed upon.
According to the report of the Standing Committee on Finance, tabled in Parliament this week, the former minister assured the committee that contrary to public opinion this was actually a pro-poor Budget.
The report says he explained, “The Budget should be viewed in its totality, rather than focusing on individual items such as the Value Added Tax (VAT) hike of 1% to be introduced on 01 April.”
In his briefing to the committee, former Minister Malusi Gigaba said that this Budget addressed itself very firmly to the needs of the poor, and the VAT increase is also directed at that. That is according to the committee report.
It goes on to say that Gigaba assured the committee that, “The funding of fee-free higher education, allocations to the National Health Insurance and the generous increases in social grants were pro-poor.
“He explained that even the stabilisation of debt was itself pro-poor as it ensured that unsustainable debt is not inherited by future generations.”
Well, that’s one way to look at it. The committee report doesn’t say whether Gigaba hung around to hear what the Parliamentary Budget Office and the Finance and Fiscal Commission had to say, or for the submissions from civil society the day after that. The former minister would have found himself alone in labelling this a pro-poor Budget.
Not many were convinced by his notion that part of the solution to South Africa’s shocking deficit lay in the R22.9-billion that would be recovered from the increase in the VAT rate. Or through spending cuts of R85-billion, which of course have to be offset against the allocation of R57-billion for fee-free higher education.
Even Parliament’s own Budget Office warned that research has shown that a VAT increase changes consumption patterns. Citing the Davis Tax Committee (DTC), it said that an increase in VAT is more inflationary, in the short term, compared to increases in personal and corporate income taxes.
The Parliamentary Budget Office went further. It said an increase in VAT could lead to slower growth and increase unemployment and that could have a greater negative impact on inequality than an increase in personal and corporate income taxes. In addition, VAT and other consumption-related tax increases would likely exaggerate the wage bill demands during wage negotiations.
With respect to fuel tax increases, the Parliamentary Budget Office said that these taxes have been found to be regressive as they lead to increases in transport costs, which comprise a chunk of poor families’ budgets given the enduring spatial legacy of apartheid. The Parliamentary Budget Office further argued that fuel taxes were becoming less effective at raising revenue as there were more fuel efficient vehicles in the market. This then leads to larger fuel levy hikes in order to raise the same amount of revenue, the office argued.
The Parliamentary Budget Office submitted that a viable alternative will need to be found, according to the report.
“The financial and operational health of SoEs, the effects of drought and the effectiveness of the revenue collection agency, as well as the uncertain costs of fee-free higher education remained major risks to the fiscal framework.”
Credit to the approximately 50 individuals and organisations that pitched up at the committee hearing the very next day in the hope that their concerns about spending cuts and the use of regressive tax in a country as unequal as South Africa would be reconsidered.
The public views were plentiful and convincing. A snapshot from the hearings bears this out. For example, take Dr Gilad Isaacs, Director of the Corporate Strategy and Industrial Development (CSID) Research Programme in the School of Economic and Business Sciences at Wits University. He spelled it out clearly when he said increases to indirect taxation are the least progressive options, will negatively impact on lower-income households and the most vulnerable, and that other viable and more progressive options are available.
Of course, this has been said repeatedly, in different ways and by different people, since the former finance minister released his dramatic announcement of a 1% increase in VAT. The point here is that Dr Isaacs was addressing Parliament’s finance committees, which are constitutionally established platforms for citizens to make an impact on the legislative decision-making process.
In this instance they have clearly failed the people. It should be noted that Dr Isaacs was not only speaking for the CSID. He was representing 30 civil society organisations (CSOs) when he appealed for changes to the tax regime to be placed in the context of South Africa’s unacceptably high inequality and its already imbalanced tax mix.
What these 30 CSOs came to Parliament to say has all been heard before: South Africa’s top 10% of full-time earners earn 82 times more than the bottom 10%, the top 10% hold at least 90-95% of the country’s wealth, much of which is inherited, and the top 1% holds 50% or more of total wealth.
How often must Isaacs and so many others make the point that taxation must play a positive redistributive role, especially at a time of low growth, when government spending “is vital to ensure that social needs are met and economic expenditure supports growth and development”, as Dr Isaacs said.
Yet instead we have a Budget that made significant cuts to social expenditure on schools, housing, informal settlements, transport and general infrastructure, “despite government’s constitutional obligations to fulfil socio-economic rights and promote economic growth”.
What Isaacs says is hard to dispute: “Progressive taxation should aim to sufficiently cover pressing social needs… [and] an increase in indirect taxation is the least progressive option.”
How can a country like South Africa with its extreme wealth at the very top have no net wealth tax in place? How can capital gains tax amount to 1.5% of the share of total tax revenue while the average for Organisation for Economic Co-operation and Development (OECD) countries lies at 40%? How can it be that dividend tax, secondary company tax and land tax comprise less that 5% of the total tax revenue? Are these questions that kept the former minister awake at night while he prepared the 2018/19 Budget?
If not, they should have. Or, as Isaacs states, he should have “concentrate[d] on the share of disposable income this [indirect] tax takes up. Because the wealthier earn and spend more they will naturally pay a larger proportion of the rand value of indirect taxes, and a larger proportion of any increase – but this tells us little of the impact an increase to these taxes may have for the livelihoods of the majority of South Africans.”
Did the former minister not realise that in time, indirect taxation will increase faster than social grants, decreasing the disposable income of households? That zero rating isn’t going to help much because zero-rated goods do not necessarily make up the majority of low-income households consumption baskets? Besides, food and fuel price rises can push low-income households away from zero-rated items.
Finally, did the former minister, or the House when it voted on Wednesday, give any thought to Isaacs and those like him from multiple CSOs, who had spent a long day in Parliament participating in the legislative process? DM
Photo: Then Minister of Finance Malusi Gigaba, flanked by deputy minister Sfiso Buthelezi and SARS commissioner Tom Moyane, arrives to Parliament, Budget day 2018 (Wednesday 21 February 2018). (Photo: Leila Dee Dougan for Daily Maverick)
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