VAT increase: understanding the pros and cons

Was the VAT increase from 14% to 15% that came into effect on 1 April necessary and is it inherently regressive or not?

Economist Dr Thabi Leoka, Nedbank Chief economist Busisiwe Radebe and Finance and Operations director at Political Economy Southern Africa Siya Biniza spoke to Eusebius McKaiser and weighed in on the matter.

Leoka said this has been a very contentious debate and she is in support of the 1 percentage point increase, as it needed to be done.

READ: Economic researcher slams anti-poor VAT hike

She said in the Medium Term Policy Statement (MTPS), the then minister, Gigaba 'revealed gory numbers'.

He revealed that we had a revenue shortfall of R50.8 billion. He also revealed that our debt to GDP ratio is not going to stabilise, its actually going to increase and it is going to increase to levels which are very uncomfortable. Also at a time where other emerging markets are actually decreasing their debt to GDP.

Dr Thabi Leoka, Economist

She said last year Stats SA released a report that said that over 55% of South Africans are living in poverty and in that report, it was revealed that a huge chunk of South Africans lives on R400 a month.

What was interesting, was the reaction you got from the 1% increase was far more than the reaction you got from the day that report was revealed.

Dr Thabi Leoka, Economist

She added that the increase in VAT was to solve the problem the country has from revenues.

Also read: Here's how much more it will cost to braai with the VAT increases

Radebe said she thinks the wealthiest 30% of South Africans actually account for 85% of the VAT income and that was contained in the budget review.

The budget review itself says: "Increasing taxes in a low growth context when many South Africans are struggling to make ends meet, is not desirable but the fiscal position is substantially weaker than it was in the time of the crisis in 2008. A failure to act now would lead to more drastic spending cuts and tax increases in the future."

Busisiwe Radebe, Nedbank Chief economist

Biniza disagreed and said from his perspective he doesnt think that it was necessary to implement such a permanent type of fix.

Listen below to the full debate on whether the VAT increase was necessary:


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