Mushtak Parker

FINANCE Minister Enoch Godongwana feigns either to be the “Mr Pragmatic” of South African politics or he wants to have his cake and eat it!

When he presented his 2025 National Budget last Wednesday to parliament any semblance of policy pragmatism soon dissipated.

The reality is that Godongwana is caught between a rock and a hard place – an economic and fiscal playbook that has plagued successive finance ministers going back to the Zuma years of state capture more than a decade ago.

Whatever silver of mitigation has long been compromised over the last three decades by the seemingly ideological fault lines within the ruling ANC coalition and its wanton inability (or as some would say its unwillingness) to root out that pernicious governance cocktail of self-enrichment, corruption and entitlement.

The transformation into a Government of National Unity (GNU) after the general election in May 2024 raised fresh hopes and expectations among voters, especially a generation of youth who have never experienced the brutalities of living under apartheid.

Judging by the reaction to the budget yet another false dawn and a lost opportunity may pass by an already clobbered nation. The central objective of the current administration, he maintained is “to meet our goals of redistribution (wealth and land redistribution I assume), redress (righting the wrongs of apartheid rule) and structural transformation (of institutions, government agencies and especially the economy through the requisite enabling laws and resources),” all in the pursuit of much faster and inclusive economic growth.

The reality is that GDP growth has averaged less than 2% over the last decade, stagnating in 2024 at a paltry 0.6% and projected at an average 1.8% over the medium term. These metrics like the gains made under the government’s flagship Operation Vulindlela, observes the IMF in its latest Country Focus on South Africa “are an important step in the right direction - necessary to alleviate binding constraints to growth, but on their own not sufficient to generate the productivity gains needed to put the economy on a path toward permanently higher growth.”

Let’s assume there is a degree of convergence among the 10-member GNU on the government’s core objective, at least in broad ethos as opposed to policy delivery pathways.

As part of Team Godongwana, Deputy Finance Minister, Ashor Sarupen of the DA, like his ANC colleague David Masondo, must have played a key role in compiling the revised budget. Here’s the conundrum. The DA has rejected the revised budget following an initial attempt at a fait accompli to get the Treasury to agree to temporary tax increases only to decrease them and adopting a series of reforms within three years.

“The ANC VAT budget doesn’t have a majority, and the DA won’t give it one. It is now up to the ANC to fix the mess it has created,” said the Sarupen. Does this mean the end of the GNU? If so, the only options are for the current GNU members to compromise, or the formation of an alternative GNU-2 which would be ideologically and mathematically difficult, or to call fresh elections!

A fragmented world full of poly-crises cannot detract from the fact that economies remain interconnected. A fragmented and diametrically opposed national polity is a recipe for governance disaster and a litany of lost opportunity costs. Disruption in both instances is a double-edged sword, which can only prove to be costly.

In the GNU, the two largest parties, the ANC and DA need to come to a functional consensus on key socio-economic indicators and policies, bereft of their ideological straightjackets at least until the next election.

Only in this way can a managed decline be replaced by a managed functionality and hopefully a reversal of the country’s governance and economic fortunes.

There needs to be an honest discussion about a range of oversights - affordability, labour reforms, sustainability, institutional capacity, procurement transparency, scope of revenue generation, debt servicing restructuring especially relating to local government and SoEs, and on a bloated bureaucracy, which often is a sop to disguised unemployment, and public sector wage restraint. This needs to go beyond the rhetoric of aspirations, and the modest achievements recorded thus far, to embrace realistic, deliverable and cost outcomes.

The task ahead is formidable indeed, and South Africa is not unique in this respect. The Starmer government in the UK is currently amid an equally soul-searching exercise – abolishing NHS England as a waste-cutting measure and trying to rein in a burgeoning welfare bill and a raft of other state handouts – something that would normally be anathema to a centre left “working people’s” party.

Godongwana mentions the painful trade-offs he had to make to raise revenues through the original intention of increasing VAT to 2%, only to reduce this by a modest 1% and phased in by 0.5% over a two-year period. This instead of raising income tax or corporation tax when individual households and businesses have been severely affected by a cost-of-living crisis over the last few years.

The impression of a Hobson’s Choice is uncanny, when there are other options such as doing the unthinkable – reining in the scope of the social grant and public sector wage restraint. In the latter a three-year wage agreement has already exceeded the 2024 Budget and MTBPS projections, further undermining certainty in budget planning.

Whether we agree with gatekeeper organisations such as the IMF, to which almost every government are beholden to, it has strongly recommended continuation of current structural reforms plus measures to enhance the business environment by cutting excessive red tape, fighting corruption, professionalising public administration, and improving the governance of SoEs, and adopting flexible labour market reforms to reduce durable unemployment.

Recent IMF analysis suggests reforms halving South Africa’s business regulation, governance, and labour-market gaps relative to peers could increase medium-run output by 9% and further boost employment - key to reducing poverty and inequality. IMF staff estimates that South Africa’s Gini coefficient - a measure of income inequality, would decline by 10 points, bringing South Africa closer to its peers.

While the IMF supports the GNU, the stark reality is that tensions between the ANC and DA are almost a governance norm and their priorities fundamentally differ, albeit their only redemption seems to be a meeting of minds on fiscal consolidation.

Godongwana’s preoccupation with a primary budget surplus of 0.5% of GDP in 2024/25 projected to rise to 0.9% in the following year, is meaningless, as debt service costs are set to grow at an average 7.1% per year over the next four years rising from R389.6bn in 2024/25 to R478.6bn in 2027/28.

The government projects that gross debt/GDP will stabilise in FY25, at 76.2% of GDP, compared with 76.1% in FY24, before declining gradually thereafter. This, says Fitch Ratings, “is more optimistic than our latest assumption that debt will reach 78.8% of GDP in FY25, from 77% in FY24, and will continue to increase in FY26.”

One key area of differing priorities is social grants, which nearly 28 million South Africans (out of a population of 62 million) currently benefit from and which some politicians seem to carry as a badge of honour.

“The truth is that ours is one of the most comprehensive social safety nets among emerging economies. This reflects our commitment to addressing poverty and inequality, while keeping our spending sustainable,” declared Godongwana. He has allocated R284.7 billion in 2025/26 for social grants, including a year extension of the COVID-19 SRD, pending a further review for the introduction of a sustainable form of income support for unemployed people.

While a basic social security payment for the vulnerable, elderly, children, the poorest in society, and the disabled are the mark of a caring and civilised society, it too must be affordable and sustainable. These inflation proof payments which together with the public sector wage increase, will be part-funded by the proposed VAT increases. That’s smacks of robbing Peter to pay Paul.

Parker is an economist and writer based in London