In Budget 3.0 the Minister of Finance withdrew the proposal for a VAT rate increase, but that means he has also not expanded the list of zero-rated food items. Last week the Consumer Goods Council of South Africa called on Treasury to reintroduce the expansion of the list.

In Budget 2.0 the idea was to raise the VAT rate by 0.5 percentage points, this year and the next. To provide relief to the poor the list of VAT zero-rated items was expanded to include offal from sheep, pigs, goats, and poultry, as well as canned beans and peas, as well as dairy liquid blends. The additional zero-rating would mean the government would forego about R2 bn of tax income this year (and R2.128 bn and R2.262 bn in the following years of the MTBPS).

A lot has been said about the cost of living in South Africa and the possibility of more VAT zero-rating. It is not easy to find more products that mainly benefit poor households. The 2019 VAT panel did not recommend chicken because it is not only pro-poor. The Treasury has also said that there is research that shows that the full benefit of the zero-rate does not reach the consumer – a part is pocketed in retail and distribution.

The part of the debate that no-one mentions is the opportunity cost – that foregone tax revenue. We can argue about the pro-poor efficiency of VAT zero-rates vs increased grants, argue about the specific products, think about ways of ensuring more of it reaches consumers etc. but what the GCCSA is not saying is where to find that R2 bn foregone revenue. It is not that much. We could cut spending, raise other taxes, or just borrow it. All these options have implications that “we” should discuss. It seems like a specific issue, but it is linked to what we believe about redistribution, the disincentive of raising other taxes, or the stabilisation of the debt. It is the stuff of a National Dialogue.