Approval of the fiscal framework was rooted in deception, court hears
DA supporters outside the Western Cape high court.
Counsel for the Economic Freedom Fighters (EFF) argued in court on Tuesday that the ANC used deception to drive the fiscal framework through parliament, because Finance Minister Enoch Godongwana had no intention of heeding a recommendation to rethink a VAT increase.
Advocate Tembeka Ngcukaitobi told the Western Cape high court the minister admitted as much in his heads of argument filed in response to the court challenge by the EFF and the Democratic Alliance (DA) to the tax hike.
He said the deception lay in persuading MPs to vote in favour of finance committee reports approving the fiscal framework on 1 April, on the false pretext that the text committed the minister to exploring alternative revenue sources.
In his court papers, Godongwana said the interim relief the DA sought was moot because his decision to increase VAT was final and
'The decision to introduce the VAT rate increase has been made,' the minister said adding that it 'cannot be interdicted at this stage'.
The ANC was forced to look to smaller parties for parliamentary support for the fiscal framework after the DA and the EFF
Ngcukaitobi recalled that it was approved by the National Assembly largely thanks to ActionSA's decision to vote in favour, on condition that Godongwana be instructed to find a way, within 30 days, to avert the hike taking effect on 1 May.
ActionSA believed this clause agreed in the finance committees was binding, and set about persuading other small political parties to support the framework. It was subsequently disabused of this, he continued.
'The minister is guilty of deception,' he said, adding that a parliamentary report that is undermined by misrepresentation can pass the legal test of rationality.
'If a vote is procured through deception it is unlawful.
'Once you have a budgetary process that is so coloured by deception it is fundamentally in breach of the duties imposed on members of parliament, especially our national executive. It is not honest, what happened here.'
Justice Katherine Savage asked whether what transpired was not par for the course for a political party trying to shore up support for a particular decision.
Ngcukaitobi quipped that if her inference was that politicians would lie and manipulate to achieve their ends he could accept that in the context of Luthuli House, not the chambers of parliament and not when the public interest was at stake.
The DA approached the high court two days after the fiscal framework was approved by 194 votes to 182, paving the way for the referral of the Division of Revenue Bill and the Appropriations Bill (s 10(1)) to the relevant committees. The EFF subsequently joined in the matter.
In Part A of its application, the DA is asking the court to urgently suspend Godongwana's announcement that VAT will increase by 0.5 percentage points from 1 May and by a further 0.5 percentage points from 1 April next year and to set aside the adoption by the National Assembly and the National Council of Provinces of the fiscal framework.
It wants it to be sent back to standing and select committees on finance for reconsideration.
The DA has argued that because MPs believed that the inclusion of a non-binding recommendation that Godongwana find an alternative would stop the VAT hike taking effect in May, their
'The committee acted on the basis of a fatal misconception — that they could control whether the VAT hike would come into effect or not,' it said, adding that what ensued was fatally irregular.
Both the DA and the EFF submitted that members of the committee had two options only in terms of the Money Bills and Related Matters Act — adopt the framework or amend it.
'That is the clear statement that was required to be included in the final report by the strictures of the Act. And it was the central issue about which committee members were uncertain,' the DA said.
Given the confusion as to what had been agreed at a marathon meeting of the finance committees, it was 'astonishing' that the issue was not put to the vote.
Instead of doing so, draft versions of the report urgently due to the National Assembly were circulated after the meeting and at this point, acceptance of the framework was written into the document.
The process was unlawful and irrational and in turn rendered the decisions by the National Assembly and the National Council of Provinces to approve the fiscal framework unlawful, the DA argued.
The EFF argued in support of the DA's main application that the validity of the fiscal framework is contingent on the validity of the report to the National Assembly.
Therefore, it argued that if the report is suspended, it follows that so is the budget and the fiscal framework is suspended and the VAT increase cannot come into effect.
Both parties argued that irreparable harm would ensue if the court did not intervene to halt the tax hike, with the DA noting, in support of its application for an interim order, that the effect would be impossible to reverse.
The DA is also asking the court, in part B of its application, to declare section 7(4) of the Value Added Tax Act unconstitutional. It proceeds so on the basis that the law improperly granted the finance minister the authority to impose tax increases without full parliamentary approval.
It is one of the rare instances, the party submitted, where there is no provision for delegation.
'There are two powers that the Constitution reserves for parliament — the power to amend statutes and the power to impose taxes. The DA's primary argument is that, because s 7(4) permits the Minister to amend s 7(1) and to impose a tax, it is unconstitutional.'
That, the party submitted, should be the end of the court's inquiry.
The constitutional power to impose taxes rests only in the legislature, not the minister, it said. Delegation is permissible only with regard to regulations, not to taxation, and parliament is not allowed to delegate plenary legislative power to the executive.'
'The power in s 7(4) is unguided, unconstrained, and sets policy, it does not give effect to it. Nothing in the VAT Act constrains how the minister exercises his s 7(4) power. That is because it is, in substance, a power to amend the VAT Act itself.
While it is notionally subject to parliament's approval, the effects are irreversible. One, even if parliament does not approve the alteration, it remains in place for 12 months. Two, it is not possible to repay VAT to the consumers who paid it during those 12 months.'
There is nothing parliament can do to undo the harm, it argued, because the only way in which it could undo the increase is by way of a money bill, and in terms of the Constitution only the minister is empowered to introduce these to parliament.
It is expected that the case will run into judicial caution as to the judiciary overstepping on the terrain of the executive.
Ngucaitobi responded to a question in this regard from the bench by saying: 'The mere fact that a decision is polycentric does not mean that it is immune from judicial review.'
He also told the court that at this point the finance ministry's contention that the poor would be shielded from the effect of the VAT increase by an expansion of the basket of zero rated items was meaningless because the commission meant to weigh this proposal had yet to be appointed, roughly a week before the hike was due to take effect.
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