Can the GNU survive Enoch’s U-turn?

Helen Zille, chair of the DA’s federal executive, was quick to claim victory after finance minister Enoch Godongwana’s late-night decision to scrap a much-hated VAT hike, but the damage done in the tussle over the budget has left the grand coalition in the balance.

The fragility of the coalition became scarily clear at a press conference yesterday at which every other party in the government took its turn to round on the DA for “misleading” the public.

It illustrates that while thwarting the VAT increase has closed one door of economic uncertainty for an economy now projected to grow at just 1% this year, it may have opened another door to much worse instability.

At a media conference early on Thursday, Zille struck a defiant tone, saying this was far from a political “settlement”, but rather a belated recognition that the high court would likely set aside the VAT hike in a case that began this week.

“Treasury’s retreat is not a reconsideration. It is a retreat born of necessity in the face of likely legal defeat,” she said. “Even Godongwana’s own court papers confirmed the intention to proceed with the VAT hike, and it was only the real prospect of losing in court … that forced Treasury into retreat.”

While Zille said the court case was vital to defeating the VAT hike, the question is what the ultimate cost will be.

On whether the grand coalition government would now splinter due to the bad blood created in the parliamentary tussle and the court battle, Zille said she had no idea what would happen. She conceded the fracas had created a “low-trust environment”, which had led the DA to ask itself: “Can we trust anything the ANC says to us?”

It is not just the DA that feels this. It was revealing that all the other parties in the GNU aside from the DA hosted a press conference on Thursday about the VAT reversal that devolved, to a large extent, into a mud-slinging contest aimed at dismantling Zille’s claim of victory for this U-turn.

Still, the tone struck by the ANC at the outset of that press conference was surprisingly conciliatory, with party secretary-general Fikile Mbalula saying his party had “learnt lessons” from this standoff. “If we had a wealth of experience [of coalitions], we might have approached this differently,” he said.

But it soon devolved after that. Speaking after Mbalula, ActionSA leader Herman Mashaba described this decision as a “vindication” of his much-slated decision to support the ANC’s budget in parliament earlier this month. His party had, somewhat confusingly, supported the vote on the budget which included the VAT hike on the condition that Godongwana would ultimately withdraw that tax increase.

“There will be no VAT increase not because of any court case that opportunistic parties now seek to falsely claim credit for, but because of principled good-faith negotiations grounded in substance, rather than extortionist, unpatriotic and dishonest politicians,” he said. 

Mashaba took fierce aim at the DA, which had accused him of voting for the tax hike, saying it had run a “deliberate and well-funded misinformation campaign” and its opposition within the government was “bizarre”.

The Patriotic Alliance’s Kenny Kunene was equally scathing, saying the DA had tried to parlay support for the budget into concessions on privatising ports and for a commitment to scrap National Health Insurance and dilute the Expropriation Act. “When the extortionists could not get their way, they ran to the courts”, Kunene said. “The DA has no moral authority to claim victory for the removal of the VAT increase.”

Patricia de Lille, the leader of the GOOD Party, echoed that sentiment, suggesting the DA had been “pretending” its opposition to VAT was based on its affinity for the plight of the poor. De Lille said the lesson from this is that “we must at all times put the people of South Africa first, and not our political parties”.

Songezo Zibi, leader of Rise Mzansi, said National Treasury’s independence “must never be compromised”, so Godongwana had to “own the process” of backtracking on the VAT hike. “We cannot create a scenario where we have a Treasury only in name, not in substance,” he said.

Zibi said the DA’s attempt to use the budget negotiations to wring concessions out of the ANC on other legislation, such as the Expropriation Act, was not appropriate. “We cannot hold budgets hostage to other political priorities,” he said, adding that the maturity required to resolve the deadlock was “not there”.

More like R43.5bn

While the economic implications will only become clear when Godongwana tables a new budget in the next few weeks, the political implications are likely to be more keenly felt by the business sector.

Adam Furlan, a portfolio manager at asset manager Ninety One, says the actual amount of VAT is “less significant” in the broader fiscal context, but the wider issue is whether this has irretrievably damaged the coalition government.

“This has been a big deal for the political environment. What it has illustrated is how disagreements in the government of national unity are being handled. From here, it’s quite hard to say how much damage this has done to the way in which the parties work together,” he tells Currency.

Furlan says the indications from all the parties, however, are that while this standoff would likely have felled other coalitions globally, South Africa’s thicker political skin may allow it to prevail. “But nonetheless, the situation is still very fluid,” he says.

While Godongwana said in his late-night statement that the cost to the fiscus of reversing the VAT hike would be R75bn, Furlan says this was likely overstated, with Ninety One’s calculation being that only about R43.5bn may be forgone over the medium-term expenditure framework.

“We now need to see what the new budget will look like. It’s clear the ANC will now need to unwind certain measures it had initially wanted,” he says.

Despite the fact that all the other coalition parties didn’t hold back from lambasting the DA, a number of recent polls shows that Zille’s party has boosted its status in voters’ eyes. Polls by the Social Research Foundation and the Brenthurst Foundation illustrate that DA support has risen in recent weeks amid the budget standoff.

As independent political analyst Ralph Mathekga tells Currency, the DA is now increasingly being seen by the black electorate as a party able to halt ANC corruption, thanks to the VAT hike. 

“The tax issue shows how the ANC has lost the moral high ground. When Enoch Godongwana said the government needed a tax hike to fund its social priorities, what the voters heard is the party wants to continue funding corruption and its cadres,” he says. 

_{Top image: Helen Zille at the DA media briefing on filing court papers challenging the VAT hike on April 3. Picture: Gallo Images/Brenton Geach.}