The decision by the National Treasury not to increase value-added tax (VAT) on 1 May is the right one in the current circumstances.

Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says after an intensive debate a rise in VAT was eventually seen to be unnecessary, and economically and politically it also failed to command wide support.

“An unchanged VAT rate brings welcome relief and certainty to business and consumers, and to that extent is confidence-building. However, this does not mean that, fiscally, South Africa is out of the woods. Future risks to fiscal policy remain.”

According to Prof Parsons, successfully managing these risks now depends on a credible fiscal strategy to balance the books being embodied in the third budget to be presented to Parliament shortly by the National Treasury. “Nevertheless, the advantages of the delayed Budget and the controversy that surrounded it are three-fold. Better options available were identified to balance the Budget on both its spending and tax sides, future Budgets will be subjected to a more intensive consultative process, and the urgent need for much higher economic growth was emphasised again.”

Prof Parsons points out that it is now even more necessary, especially given current global developments, for South Africa to speedily accelerate key structural reforms to expand the economy. “Fiscal sustainability needs to be reinforced by stronger economic growth that enlarges the tax base and hence boosts tax revenues,” he says.