JOHANNESBURG—When the African National Congress (ANC), which has the most seats in South Africa’s Government of National Unity, used its majority to push through controversial health and education bills last year, the second largest party in the coalition, the centrist Democratic Alliance (DA), was not happy.
The country couldn’t afford a national health insurance scheme aimed at providing better public health care to 63 million people, it said, and new education laws would end citizens’ rights to mother-tongue education.
While the DA said that the ANC wasn’t playing fair and was breaking previous agreements, it also said the partners would talk and that compromises would be reached.
That was quite kind of the DA, analysts said, given that it was largely because of the pro-business, Western-friendly party that the ANC remained in the Union Buildings.
Public anger over decades of corruption, service delivery failures, violent crime, and economic mismanagement that have resulted in one of the world’s highest rates of unemployment spilled over at the ballot boxes and shattered the ANC’s previously unbreakable hold on power.
To keep a semblance of stability in Africa’s largest economy, and to prevent the possibility of radical, communist organizations having a say in government, the DA and several other parties agreed to form a coalition with the ANC.
“We knew it would be tough because we come from very different worlds,” DA leader John Steenhuisen told The Epoch Times. “Most obvious is that we vehemently disagree with the ANC’s alliances with China, Russia, and Iran.
“But we have also had to be pragmatic; there are far greater evils waiting in the wings than the ANC. We reckoned we could work with the ANC. Until now.”
Political analysts say the DA has picked the perfect battle in which to finally assert itself against the ANC: a planned value-added tax (VAT) hike from 15 percent to 17 percent.
The chairman of the Parliament’s Standing Committee on Public Accounts, Songezo Zibi, told The Epoch Times that parties now have almost two months to “plot a way forward” to resolve the tax impasse before a vote on the issue takes place.
In a country where almost half of the population is mired in poverty, the DA’s fight to prevent the ANC leadership’s planned hike is extremely popular.
“The wealthier class and the middle class, as overtaxed as they already are, will be able to insulate themselves from the ravages of such a tax increase simply by changing spending habits,” Ann Bernstein, a development economist who heads the Center for Enterprise and Development in Johannesburg, told The Epoch Times.
“But for the poor, increasing VAT by even half a percentage point is the difference between eating chicken once a week or not, between eating once a day or eating once every two or three days.
“It’s the difference between paying for electricity or water.”
According to Fabio Pabon, a fellow at the African Centre of Excellence for Inequality Research at the University of Cape Town, a VAT-induced increase in the cost of living could cause many in the middle class to stop paying their debts.
His research shows that middle-class households use almost 70 percent of their incomes to cover their debts.
“Should middle- and working-class households default in large numbers on their debt obligations, a vicious cycle might unfold,” Pabon told The Epoch Times.
“Banks and financial institutions would face significant losses due to unpaid loans. This could trigger an economic recession as consumption could fall, leading to lower revenue collection.
“This could increase government debt as the state might need to bail out banks or get loans to cover the revenue shortfall.
“The result would be a credit downgrade, which might make it more expensive to borrow money on international markets.”
In South Africa, only 7.4 million people—out of a population of 63 million—pay income tax.
“The tax base is strained and very vulnerable. Just a tiny revolt would have a major effect on our economy,” Bernstein said.
She said she’s convinced that Finance Minister Enoch Godongwana, a senior ANC official, and his team decided on a VAT increase “to avoid a fight” with richer South Africans.
“They could’ve angled for higher income tax for high-income earners, taxes on capital gains, or taxes on wealth,” Bernstein said.
“But they didn’t because they know the wealthy elites will oppose tax hikes targeted directly at them. They have significant leverage over the government.
“Other classes of citizens are essentially helpless.”
In a brief interview with The Epoch Times, Godongwana said that raising VAT is the state’s best option to increase revenue.
“If we don’t want to sink deep in the red, we must double [gross domestic product] growth,“ he said. ”That is unlikely at this stage, and our treasury is running out of cash. A VAT increase is the logical way to prevent this disaster.”
Pabon said the tax impasse highlights the problem that South Africa is facing.
However, Steenhuisen is adamant that a VAT increase is not the best way to service debt.
“It’s the easy way out to cover up decades of ANC economic mismanagement and corruption. The coffers are empty because the ANC pillaged and mismanaged those coffers,” he said.
Professor Susan Booysen, director of research at the Mapungubwe Institute for Strategic Reflection in Johannesburg, told The Epoch Times that the DA is tired of being “mistreated and ignored” by its coalition partner.
“The ANC clearly still controls foreign policy, and it controls the economic levers of power in government,” she said.
“In this tax controversy, the DA sees an opportunity to score a major political victory against the ANC at a time when many DA supporters are complaining that their party is being bullied and abused by the Ramaphosa administration.”
Dion George, an economist and chairman of the DA’s Federal Finance Committee, said his party would not allow the ANC to increase VAT.
“If that happens, we’ll plunge into food insecurity,” he told The Epoch Times. “So we’re not backing down from this fight.”
George said goods that poor citizens depend on, including bread, cooking oil, margarine, and vegetables, would be more expensive should the government increase VAT.
He said South Africans’ health would suffer in the event of a VAT hike, which would ultimately strain the health sector.
“People will begin to rely on diets that are heavier in cheaper starches. So malnutrition will rise. We’ll see higher rates of stunting in children, just to give one example of the harmful knock-on effects,” George said.
These include building the state’s capacity to collect existing taxes, drawing further funds from the country’s gold and foreign exchange reserve holdings, and cutting back on unnecessary tax breaks.
“We’ll continue negotiating with the ANC about avoiding any VAT increase,” Steenhuisen said.
“And we’ll negotiate from the premise that it is absurd to expect the legions of poor in South Africa to cough up the money we need to get us out of the economic mess that the ANC got us into.”
