Finance Minister Malusi Gigaba announces the VAT and income tax hikes in the Budget. Picture: Phando Jikelo/ANA
Cape Town - President Cyril Ramaphosa’s administration is on a collision course with the ANC’s alliance partners, Cosatu and the SACP.

On Wednesday, Cosatu and the SACP slammed Finance Minister Malusi Gigaba for raising value added tax (VAT) and income tax.

In his maiden Budget speech, Gigaba conceded that funding free higher education that former president Jacob Zuma announced on the eve of the ANC's elective conference in December and the R48.2billion shortfall in the Budget would require additional revenue from the fiscus.

The scramble for cash to fund free higher education - which received R57bn this year - and the dip in income tax revenue had also forced the government to cut expenditure in some of the crucial areas, such as infrastructure grants for schools.

Cosatu and the SACP have described the tax increases as a “betrayal” of the working class and the poor, who would feel the pinch from April.

The federation’s spokesperson Sizwe Pamla stopped short of accusing Ramaphosa of misleading the nation when he delivered his much celebrated first State of the Nation Address (SONA) on Friday.

“We enthusiastically welcomed the vision and plan outlined in the SONA by President Ramaphosa, but it’s obvious that he sold us a dummy, with a false prospectus.

“While the president was emphatic on the need for the government to kickstart the economy, create jobs to absorb the millions of unemployed and to tackle the scourge of corruption and state capture, the Budget is deafeningly silent on how that is going to be achieved,” Pamla said.

“Government’s response to its Budget problems is to take money from workers through VAT and below-inflation income tax bracket hikes. This will hurt workers and their families by taking money from their pockets and making basic food and other living expenses more expensive,” Pamla said.

Large provincial conditional grants such as the schools infrastructure backlog grant, the education infrastructure grant, the human settlements development grant and the provincial roads maintenance grant have been reduced.

Similar cuts were made to local government grants, including the municipal infrastructure grant, the integrated national electrification programme grant, the urban settlement grant and the public transport network grant.

These cuts would delay the completion of a number of infrastructure projects, Pamla said.

A National Treasury official said they were targeting government institutions that were failing to spend, reduce or cut grants.

SACP national spokesperson Alex Mashilo accused the government of forcing the working class and the poor to foot the bill for fee-free higher, without consulting them.

“There was no clarity given when the fee-free higher education announcement was made, which plunged the nation into confusion and uncertainty.

"We were looking for that clarity today, and it is very clear that the money will come from the workers and the poor, who are the majority of our population,” Mashilo said.

While the SACP fully supported free higher education, it rejected the decision to increase VAT, he said.

“The SACP denounces the increase of VAT, because there is no way that the South African state is going get things right unless it develops the political will of radically reducing inequality. We will not resolve inequality if the government does not have the guts to tax the rich,” he said.

The increase in VAT and personal income tax was meant to raise R36bn for the fiscus. Gigaba said increasing VAT and income tax was unavoidable.

“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards.

"We have not adjusted VAT since 1993, and it is low compared to some of our peers,” he added.

Vulnerable households would be cushioned through the increase in social grants, with some relief for lower-income individuals through an increase in the bottom three personal income-tax brackets and the rebates, the minister said.

The economic outlook had improved due to the growth in agriculture and the recovery in investor and business confidence.

The government was expecting growth of 1.5% in 2018, rising to 2.1% in 2020, significantly below the 5% envisaged in the National Development Plan.

SA Federation of Trade Unions (Saftu) general secretary Zwelinzima Vavi said the federation could go to the streets next month, as the decision to increase VAT was an assault on the working class.

“Workers have taken a serious beating in this Budget speech. They've been taken for fools by being told that this is for their benefit.

“I hope our members will give us a mandate to take this to the streets (and strike),” Vavi said.

Katrien van Aswegen, an associate at Bowmans’ Tax Practice, said lower-income households would bear a “significant burden” for addressing the shortfall in revenue.

“South African income tax is an example of a progressive tax, because higher-income earners pay income tax at a higher rate.

"VAT is generally cited as a perfect example of a regressive tax because all people pay the same rate, even though not everyone is equally able to afford it,” she added.

Van Aswegen said considering that the Budget was already burdened by social grants, “an increase in a tax affecting exactly that portion of society that is in dire need of government assistance cannot possibly be seen as a sustainable solution to a revenue shortfall”.

Political Bureau