How the VAT increases the social and economic burdens the poor

The national budget of any country is, in essence, a statement of value of its government and vicariously of the key power players and ‘influencers’ in that society. The budget delivered by former Minister of Finance, Malusi Gigaba, was delivered in the context of political transition, uncertainty and the notion of a ‘hole in the fiscus’ due to a global and national financial and economic crises, as well as money lost to the fiscus due to state capture and corruption.

The first of these causal factors is important as the global economic and financial crises is not short-term. It is in fact indicative of a long-term crisis with its roots itself being a crisis in capitalism and financialization of both the global and national economy.  This implies that economic and social policies of governments would need to factor in this reality. The failure to do so will result in increased levels of poverty, inequality, and increased levels of instability due the hardships experienced by the poor and marginalized.

The crisis in the current dominant mode of accumulation – i.e. extractive forms of capitalism and its twin financialisation - has led to some commentators writing that the ‘post-growth’ world is now a reality. Low growth rates has been the norm rather than exception across the globe for over the last decade.  While the growth creates jobs mantra has been questioned for decades, the confluence of new forms of work; that growth through financialisation has reached its peak; and that growth through extractive industries has caused permanent damage to the environment means that governments across the world need to consider how it fosters well-being, and reduces inequalities and poverty in this new normal.

The building of a well-being economy will require policy frameworks that are based on solidarity and sharing. This includes restructuring the tax system to be more progressive, with the rich contributing a greater share towards the fiscus, so that all in society live better lives.  The South African tax regime has been progressive in that the rich through Personal Income Tax (PIT) have been contributing more than the unemployed and the working poor.  It must be emphasized that all South Africans pay tax, and that VAT has been a significant contributor to the fiscus. The progressive nature of the South African tax system has been stymied by the rather low by developing country standards of the corporate income tax levels, which has remained at 28% for the last 10 years. 

In the context of the budget being a statement of value, it can be suggested that the values of the poor and marginalized have been overlooked and that the agency of the rich and corporate influencers have been more salient.  The increase in VAT was predicted and welcomed by corporate analysts weeks before it was announced as the only means towards closing the revenue gaps. Some of us were hoping for a more innovate much innovative budget given the idea that the kinds of growth based strategies is not the reality anymore. Instead, we got an increase in VAT - the effect of which is the exact opposite of a creating and building a well-being society and economy.

The increase of 1% in Value Added Tax (VAT) from 14% to 15% from 1 April 2018 will impact most negatively, on ordinary working people. Black women – and especially single black parents, in the main, women – worst of all.

The increase of VAT is a blunt instrument to close the R50.8 billion tax revenue shortfall – the gap between what the government receives and what it spends - in the 2017/8 financial year.

Soul City Institute for Social Justice joins the many progressive NGOs that opposes the increase based on it being regressive and counter-intuitive to the goals of reducing poverty and inequality.

The most immediate and devastating impact of the VAT increase will be felt in the diets of the poor children.  The foodstuffs that are currently zero-rated are in the main, not nutritious and it’s continued impact of the VAT increase will make access to nutritious and quality food more inaccessible. Given that the most discretionary component of the budgets of poor households is the food budget, the increase in VAT may in all likelihood lead to the purchasing and consumption of cheap and unhealthy foods.  This runs contrary to the Department of Health’s goals to reduce non-communicable diseases such as diabetes and obesity which stems in part from poor nutrition.

This blow to poor black women and their children’s food security will have a devastating domino effect. Almost all this already non-nutritious basic (that is VAT exempted) foods require cooking – which of course - requires electricity and water, which are not VAT exempted.

Similarly, given the existing apartheid spatial development patterns there is already a high cost associated with the poor accessing places of economic opportunities.

As the fuel levy increases, taxi fare and petrol costs are also likely to increase. This means the poor and black women in particular will have to spend more money on public transport and their children’s transportation, such as on taxis and trains. The same cost escalations can be expected with respect to cost involved with school uniforms.

Among the most vulnerable people, and of particular concern to Soul City Institute, would be the impact of the VAT increase on women and girls. The increase in VAT will impact specifically, on commodities related to access to sexual and reproductive health and rights.  A notable example is the anticipated rise associated with sanitary pads. Already, school attendance is negatively affected by the costs and therefore, access to sanitary pads. This lack of access will be exacerbated as a result of the VAT increase.  Given that progressive voices have lost the VAT increase debate in parliament, the Soul City Institute calls for debate that will make the tax system more progressive and alive to the new reality of what can be described as the ‘crisis’ in global capitalism as being almost permanent.

In the short-term, we call for a review of all VAT exempt items to take cognisance of the health needs of all South Africans; the reproductive health services of women and girls; and the urgent need to align VAT with chapter 11 of the National Development Plan. This enjoins the government to implement a social protection floor that sets a decent living standard below which no South African should live.  The VAT increase contradicts the spirit and intention of establishing this social protection floor.

Zane Dangor is the chief operating officer at Soul City Institute of Social Justice.

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