Finance Minister Enoch Godongwana speaking during a media briefing on Wednesday after the tabling of the 2025 Budget Review was postponed. Picture: Supplied/GCIS
The unprecedented postponement of the tabling of the Budget Review before Parliament by Finance Minister Enoch Godongwana over disagreements about tax increases has been seen as failure of economic growth policies more than the strengthening of the Government of National Unity (GNU).
Godongwana was scheduled to table the 2025 Budget Review and the Division of Revenue Bill before Parliament on Wednesday, but this has since been postponed to March 12 as GNU parties disagreed with the proposed VAT increase.
The National Treasury was going to table a proposal for a 2 percentage point increase in VAT, from 15% to 17%, in a bid to raise at least R58 billion over the 2025 fiscal year as the government faces a significant revenue shortfall.
However, Godongwana was coy about the issue that resulted in the fallout between the GNU partners during last-minute discussions about the Budget documents, only saying that it was a norm for Treasury to inform stakeholders of important details of the Budget on the morning of its tabling.
“Some of the information is market sensitive,” Godongwana said.
“We normally put it early in the morning [on the day of the Budget presentation]. The unfortunate thing today is that the President was not around so we started late.”
During an afternoon media briefing after the Budget Speech was aborted, Godongwana declined to comment whether the proposed 2% VAT increase was where the GNU partners drew the line in the sand.
“You can’t have the 2% alone without talking about what is going to replace it and that does not become contentious. What we are grappling with is not necessarily the 2% but what we are grappling with is that given the challenges and priorities that we are facing, how do we fund them,” Godongwana said.
“Do we borrow more? What are the implications of that? Do we continue cutting expenditure, what are the implications of that? Do we raise tax, what are the implications of that? There is general agreement that in the current environment we need to find a way of funding our priorities. The debate is what is the best way of doing it.”
It is clear that the budget process did not give adequate time for consultation between members of the GNU as Godongwana said Treasury would begin with the consultation process promptly.
The business sector said that while Treasury was rightly concerned that market-sensitive information must be handled appropriately, it must take the GNU into its confidence, and Cabinet members must protect the information they are privy to.
Business Leadership South Africa CEO, Busisiwe Mavuso, said the failure of the GNU to resolve its differences over the Budget is disappointing and negative for business sentiment.
“There is no getting away from the disappointment we as business feel over this delay. But I hope the GNU can urgently provide a clear way forward that business and investors can rely on,” Mavuso said.
“It is now critical that the GNU demonstrate that doing so leads to an improved outcome, a budget that they are united behind that delivers for economic growth. The delay is a shock to the public as well as investors here and abroad. Restoring confidence is the first priority.”
The proposed VAT increase would be the first one since 2018 which hiked VAT from 14% to 15%.
Even though the National Treasury has proposed the addition of new food items to the basket of goods that are zero rated for VAT, the domino effect of the VAT increase would be far-reaching.
It could result in the rising cost of goods and services translating into higher headline consumer inflation as it seeps into electricity, fuel and food prices, and prompting the South African Reserve Bank to lift interest rates to arrest inflation.
South Africa’s taxpayers are already overburdened, with the latest tax statistics highlighting the high tax burden on middle-class and high-income earners.
Just over 1.6 million taxpayers pay more than 76% of all personal income tax.
Riaan Grobler, the head of advisory services at Everest Wealth, it was expected that Godongwana would announce a tax bracket creep, where tax brackets are not adjusted for inflation.
Grobler said the tax burden was only getting heavier on a smaller number of individuals while the economy is not growing and many taxpayers were leaving the country.
“South Africa’s economic growth is sluggish amid rising government debt. The government’s ambitious plans to stabilise government debt do not appear to be materialising while Godongwana is clearly looking at tax measures to try to collect billions of rands of extra revenue,” Grobler said.
“The taxpayer base is becoming increasingly disillusioned as they are not getting value for their hard-earned tax money. Instead of finding new ways to tax South Africans more heavily, there should be tax relief to stimulate economic growth.”
The rand felt the impact of the Budget postponement sharply, falling nearly 1% to R18,58 to the US dollar by 16h30 as the market reacted negative to the developments in Parliament.
“Although the rand could possibly recover (or maybe not!) as the market digests the news, the heightened uncertainty is not positive for the rand, risk premium or bond yields,” said Roy Havemann, a senior economist at the Bureau for Economic Research (BER).
Though some commentators felt that the postponement of the Budget signalled cracks within the GNU, other economists believed that it was a good move.
NWU Business School economist Professor Raymond Parsons said the Budget postponement will inevitably have unintended consequences for South Africa’s political economy.
Nonetheless, Parsons said if the eventual Budget in March turns out to be truly committed to growth and job creation the delay will be worthwhile, if the GNU gets agreed ‘trade-offs’ and better outcomes for the economy as a whole.
“Fundamentally, the sharp controversy about the tax burden can basically be seen as symptomatic of the fact that economic growth in SA has been too low for too long. The tax base as a whole has shrunk as a result, given persistently low growth, thus limiting financing options.
”The postponed Budget will nonetheless create an elevated level of policy uncertainty for now, which has already been reflected in the rand. It also comes at a time when global risks to SA are higher. Markets will now be carefully monitoring progress being made by the GNU from now on in finding sufficient consensus about the final Budget.”
BUSINESS REPORT