Budget postponement signals urgent need for consensus in GNU

THE financial community is watching closely, following the unprecedented delay of the Budget speech this week.

Economists have termed this a watershed moment for both politics and economy.

Dawie Roodt pointed out that the African National Congress (ANC) has hit a “brick wall,” realising that it is no longer the sole dominant force in South African politics — an assertion that has left the party with “eggs on their face.”

Roodt said what was witnessed on Wednesday was a watershed in terms of politics and the economy.

Finance Minister Enoch Godongwana was forced on Wednesday to delay his delivery of the 2025 national budget until March 12 after the cabinet failed to agree on the measures he had proposed.

The decision was announced by National Assembly speaker Thoko Didiza who said the lack of consensus may be linked to the two percentage point increase in VAT which Godongwana was expected to announce.

Roodt expressed worry that future budgets may devolve into a political “playball,” as parties jockey for influence, while the pressing realities of economic sustainability loom large.

"The debt levels have reached a level that has become unsustainable and the minister has to do something about this to grow the economy and that would mean making certain changes regarding certain policies and politicians do not want to do that because politically that is difficult to do. That leaves you with two options and that is to increase taxes or borrow more, but that is dangerous because the debt levels are out of hand," said Roodt.

Lisette Ijssel de Schepper and Claire Bisseker of the Bureau for Economic Research at Stellenbosch University highlighted that the postponement was a wake-up call that a coalition government requires processes to involve all partners in decision-making.

"Our suspicion has always been that a VAT hike would potentially be used to fund a Basic Income Grant (BIG) or the rollout of National Health Insurance (NHI) – given the Treasury’s emphasis that it would need a revenue source to fund these expenditures.

"If the aborted budget had been tabled (and subsequently passed), that tax wiggle room would have all been used up - and even then, there was still nothing new in the budget for Transnet or to permanently fund the social relief of distress (SRD) grant as the basis of sustainable basic income support as promised by President Cyril Ramaphosa in his state of the nation address," said they said in a report.

They acknowledged the concern that the VAT increase would likely dampen consumer spending and thereby weaken economic growth, which would be counter productive.

"The Budget Review noted that studies have shown that increasing VAT will have the least detrimental effect on economic growth and employment relative to increases in personal or corporate income tax.

"From a practical perspective, the discussion among GNU parties and Treasury will thus likely turn into one about trade-offs. If they are adamant about not raising VAT, there is no money for the ‘new’ expenditures—so what will they be willing to forfeit, or where else could the money be found?"

When asked about alternate means or ways to raise money instead of raising the VAT, Ijssel de Schepper said the question was whether the money needs to be raised or whether expenditure needs to be cut back so that less revenue is required, adding that it was something only the GNU can decide in line with its policy priorities.

Professor Irrshad Kaseeram, deputy dean for research and internationalisation at the University of Zululand Faculty of Commerce, Administration and Law, said while the actual postponement was a shock, he believes it was anticipated with the coalition government.

"I think it was a good thing because it is forcing the government to act in a way that involves consensus politics. The other parties protested and the government responded by postponing the presentation and very quickly set an alternate date.

"The 2% increase in VAT will impact largely the middle and upper income and will be seen as an excessive burden on the consumer. Government did not look at the effect of the 2% tax and what would be the benefit to society. Obviously it would help alleviate the debt burden but what would be the implications for those few that are taxpayers and our tax paying population that is very small," said Kaseeram.