The much-anticipated Budget Speech for 2025 was cancelled this week after the Government National Unity (GNU) found itself at loggerheads over key economic proposals.
The dispute, particularly over a proposed 2% VAT increase, has exposed deep divisions within the coalition government, delaying the speech until March 12, 2025.
This latest deadlock raises concerns about the stability of the GNU and its ability to address South Africa’s economic challenges and whether the Finance Minister Enoch Godongwana, could keep to President Cyril Ramaphosa’s promises made during the State of the Nation Address more than a week ago.
Economist Dawie Roodt said conflict within the GNU as a “political and economic turning point” for the country.
Roodt believes that the clash underscores the weakening grip of the ANC on South Africa’s political landscape.
“What we found out yesterday is that the ANC is no longer as powerful as it used to be and the organisation that cannot meet the demands of South Africa’s economy anymore.”
Roodt’s said the current economic difficulties are compounded by an overextended state, which he believes cannot continue its expansion without severely damaging the economy.
“Politicians are being forced by reality to play into the hands of the people. The economy will always win the fight,” he stated.
Reflecting on the specific reasons for the cancellation, Roodt noted that the proposed VAT increase would further burden South Africans already struggling with soaring living costs.
“What I can say is that should this go through or should the ANC go into coalition with MK and or EFF, we will see a downfall of the economy.”
He warned that tax hikes like these would only exacerbate the situation, suggesting that the State should instead focus on cutting back spending and reducing the size of government.
“We can’t feed this monster called the State anymore,” he argued, proposing significant cuts to public sector spending, BEE funding, and an overhaul of state-owned enterprises.
“I believe these and cutting all deals with Iran and perhaps even making a phone call to Donald Trump to say sorry, will boost South Africa’s economy by even five to six percent.”
Economist Ulricht Joubert, pointed out that the recent developments in South Africa, already caused uncertainty in financial markets, with “the rand weakening substantially.”
“Long-term interest rates rose sharply, and the stock exchange declined.
“However this is also a positive shift, in the sense of making the ruling party of the past 30 years realise that there are other aspects that they have to take into account before pushing their agenda.“
Joubert warns that a proposed 2% increase in VAT would raise living costs, push up the inflation rate, and limit further interest rate cuts.
Joubert instead called for a budget that supports private sector involvement in state-owned enterprises like Transnet and Eskom to create an environment where businesses can do profitable business and employ people.
He suggests gradually reducing the public sector workforce, achieving a more lenient and lean government employee situation to ease the taxpayer burden.
Despite the negative impact on markets, Joubert concluded that he is “actually very pleased it happened” as it should serve as “a lesson for the future.”
Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty also weighed in on the situation, echoing Roodt’s sentiments regarding the VAT increase, which he called “unconscionable” given the current economic climate.
“It beggars belief,” Geffen said, referencing President Cyril Ramaphosa’s recent comments during the State of the Nation Address, where he revealed that nearly 45% of the country’s population relies on social grants.
“When interest rates are still high, consumer costs are out of control, and the economy is struggling, now is not the time to increase VAT,” Geffen emphasised.
Geffen also expressed concern over the long-term economic policies of the ANC, which he believes have led to “systematic pillaging” of the country’s resources.
He warned that business cannot and will not support the 2025 budget unless it includes a clear, pro-growth strategy.
“The budget must promote economic growth and provide a tangible plan to reintegrate this country into the global community,” he stated firmly.
Meanwhile, Dr. Jonathan Mark Hoskins, a Political Studies expert from the University of the Western Cape, noted that such tensions are to be expected within a coalition government like the GNU.
“The GNU is built on competing visions for South Africa’s development. The parties involved have differing views, and these conflicts are likely to continue as the coalition seeks to find a functional equilibrium.”
Hoskins further suggested that the internal divisions in the GNU are symptomatic of the broader political shifts in South Africa, particularly after the ANC lost its position as the dominant party.
“This is new political terrain,” he said, adding that the VAT dispute is just one of many challenges the coalition will face moving forward.