South Africa faces mounting budget pressures as finance minister unveils new fiscal plans

South Africa's Budget crisis continued this past week after Finance Minister Enoch Godongwana announced that he will be tabling yet another budget later this month. 

This comes after the initial Budget was cancelled in February, as the ANC sought to bring in major changes to the previously agreed budgeted finances for the fiscal years ahead, with the Democratic Alliance (DA) only finding out about the changes on the morning of the planned Budget speech.

Godongwana then tabled a Budget in Parliament in March, backtracked on the initial hefty 2% Value Added Tax (VAT) increase and lowered it to 0.5% for this year and another 0.5% in the next.

Weeks later, the Budget was approved, with the DA and EFF opposing the new proposed VAT increase and took the matter to court. 

Godongwana said that the Budget of 12 March 2025 and the proposed VAT increase sparked rigorous debate.

“This is welcomed in a healthy democracy. Today there is clarity that VAT will remain at 15%. This decision was shaped not only by political debate but by the voices of the South African people.”

Godongwana added that we are all new in South Africa to what is called coalition politics. “There are lessons to be learnt by cabinet, legislature and ourselves. I'm pleased that we have agreed that we will balance the budget without raising VAT while protecting vital sectors such as education, health, and social grants.”

As real income data showed a fall of 2.8% in March, Investec Economist, Anabell Bishop, said, "Political parties across the spectrum in SA vehemently disagreed with the planned 2% VAT increase. Real income growth slowed to 0.9% m/m in February from 5.2% m/m in January as confidence sagged on the implications for growth and inflation."

"GDP growth would have been close to -0.5% y/y lower for the year on a 2% VAT hike, and CPI inflation 1% higher. In March the VAT hike was toned down in the budget speech, but it would still have suppressed growth and lifted inflation," Bishop further said on Friday.

"With the VAT hike now scrapped, but a new budget date set for 21 May, clarity is expected, although the threat of the court case against any VAT hike saw this come off the table, and expenditure cuts have been highlighted instead for the budget," she added. 

Godongwana said that the National Treasury has already commenced work on developing a new fiscal framework that will maintain their trajectory toward debt stabilisation, a crucial element in strengthening our public finances.

“The revised budget will adhere to all established technical processes and consultations as set out in the Money Bills and Related Matters Act. This includes formal consultations with the Financial and Fiscal Commission, thorough consultations with all political parties within the Government of National Unity (GNU), as well as Cabinet approval before presentation to Parliament.”

As South Africa navigates the new norms of the workings of the GNU, Godongwana said that to prevent such instances from occurring again, National Treasury will develop a new consultation process for the Budget speech to accommodate the GNU. “

This process will start in September before the Medium-Term Budget Policy Statement (MTBPS). The MTBS is a key milestone as it shapes the content of the February budget,” he said. 

Professor Andre Thomashausen, a renowned expert in international law from the University of South Africa, said that the survival of the GNU is crucial to safeguarding South Africa's reputation as a reliable trading partner and safe investment destination.

“The VAT compromise is a small price to pay for giving the GNU a longer chance to fix the many governance issues that the GNU inherited. It is positive that the VAT debate has now encouraged a more rigorous engagement to combat corruption and the wasting of funds in the upkeep of mismanaged State Owned Enterprises.”

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