Parliament on Wednesday postponed SA’s national budget for the first time after a day of high drama in which cabinet members of the government of national unity (GNU) pushed back against finance minister Enoch Godongwana’s plan to hike VAT to 17% from 15% to fund a big increase in spending on front-line services.
After a flurry of meetings — one between President Cyril Ramaphosa and the leaders of the nine parties represented in the GNU at 7am, followed by a tense cabinet discussion — it was agreed that the budget would be postponed to March 12.
Sources said the president was “moved by the facts” raised against the proposed hike and its potential impact politically and on households.
Business Day understands the two percentage-point figure was discussed only with the DA a week ago and was not raised in a consultation two weeks back. It is understood the party opposed the suggestion.
Godongwana admitted in a briefing on Wednesday afternoon that while he had shared the “direction of travel” about a tax increase with the cabinet two weeks ago, it was not until Wednesday morning’s meeting that he revealed the magnitude of his proposed increase in VAT. “Because of the market sensitivity we didn’t put some of these issues on the table,” he said.
The cabinet had asked to postpone the budget because it could not get consensus and wanted time to discuss the trade-offs, he said. He emphasised the opposition came not only from the DA but from across parties in cabinet, including from some ANC ministers.
"[Godongwana] thought that we would blink, he knew there was broad opposition to the increase, but was going ahead anyway,” a source who attended the meetings told Business Day.
Justice minister Mmamoloko Kubayi “spoke against it, and so did [tourism minister Patricia] De Lille. Today showed that it is not simply ‘my way or the highway’ for the Treasury. But Godongwana accepted the criticism,” another leader said.
“When cabinet becomes involved in a detailed discussion of the budget that is useful for us,” Godongwana said as he put a good face on a debacle that economists said had dented the credibility of the budget process in the market, as well as highlighting fault lines in the GNU — even if it was democracy at work. The rand lost more than 1% on news of the delay.
The Treasury agreed late on Wednesday to lift the embargo on the suite of budget documents that was shared with journalists and economists in the morning, ahead of the minister’s scheduled 2pm budget speech. There are no immediate risks from a delay in the budget, with the new fiscal year due to start on April 1, and legislation providing for government departments to spend a proportion of last year’s allocations even if the budget is late.
The budget Godongwana would have presented showed the government sticking with its promise to stabilise the public debt in 2025/26. But it shifted the fiscal strategy from one that relied on big spending cuts to one that relied on hiking taxes, specifically VAT, to finance a sizeable increase in spending.
He proposed R173bn of additional spending over the three years of the medium term. The bulk of this would have been allocated to front-line services, particularly healthcare and education, but about R46bn was also allocated for infrastructure.
The VAT increase and one or two smaller tax measures would have raised an extra R58bn in the current year and added almost R90bn to revenue in the next couple of years. The Treasury would still stabilise the debt ratio in the 2025/26 fiscal year as promised, but at 76.1% of GDP against the 75.5% projected in October’s medium-term budget statement. The cost of servicing that debt stabilises at almost 22% of GDP in the current year. In a weaker-than-expected economy, economists had expected tax collections could fall even more than October’s downwardly revised estimate, but the budget documents showed revenue was slightly better, with the Treasury on track to reduce deficit and debt ratios.
“The VAT increase has nothing to do with the fiscal balance. We were always comfortable that we would achieve our broad targets without any policy change on the taxation side,” Treasury budget office head Edgar Sishi told Business Day.
“It is specifically because of persistent spending pressures and new pressures that needed to be funded, and we decided we are not going to increase borrowing to fund what is mainly operating expenditure.”
Godongwana said if the government could not have the two percentage-point VAT increase, it would have to talk about what would replace it. He earlier told journalists the government was faced with the difficulties of funding front-line services such as health and education, which were becoming eroded.
Borrowing more was not an option because the debt-to-GDP ratio was already high and the economy was not growing and had limited capacity to service more debt, he said.
DA leader John Steenhuisen said he was “greatly relieved” the budget was postponed to ensure that it speaks to growth and jobs. “We have to go beyond spending cuts and tax narratives ... we do have suggestions that we put forward, big, bold things to stimulate growth ... Now is the time for us to be bold,” he said.
Steenhuisen said the DA would have voted against the budget had it been tabled on Wednesday, but added the cabinet decided on the “responsible” route by postponing its tabling.
Patriotic Alliance leader Gayton McKenzie praised all parties in the GNU for their handling of the matter, saying it had increased his confidence in the longevity of the coalition.
Songezo Zibi, leader of Rise Mzansi, said his party “only got to look at it [the budget] in detail this morning. I’m still going through all the budget documents. So we haven’t made up our mind. However, what I want to say is that none of the political parties must be dishonest and propose that it’s possible to pass a budget this year that supports all our objectives but does not involve painful and difficult decisions for the government politically and for South Africans.”
Political analyst Richard Calland said the GNU has to ensure its communication over the next few days allays concern that this impasse marks its demise. The events over the last 24 hours highlights the weaknesses in the GNU’s decision-making structures, he said.
“The ANC needs to recognise it is no longer the majority ... the Treasury also needs to realise the game has changed ... at the same time the DA cannot dictate the budget to the Treasury.”
The Bureau for Economic Research said it was unclear why the crisis arose so late in the process. “To some extent this is the GNU ‘working’. There had always been concerns that the parties outside the ANC would not be able to exercise leverage over the direction of the government,” BER economist and former Treasury senior official Roy Havemann said in a note.
“However this shows that they are able to and not afraid to. This will bode well for future policy debates on other areas where the ANC has tried to push through its position (the Expropriation Act in particular).”
Fears that MK and the EFF would have benefited the most politically from a potential tax hike was part of the argument against it in the GNU meeting held on Tuesday. That could have played out had the budget been tabled — the two parties could have used the VAT hike to rally voters ahead of the 2026 local election.
EFF leader Julius Malema argued in parliament after the postponement was announced that the government had “collapsed” as there was no budget. The official opposition in parliament, the MK party, slammed the postponement and raged against the suggestion of a VAT increase and its potential impact on the poor.
Kenneth Creamer from the Wits School of Economics and Finance told Business Day a VAT increase would have led to unwelcome price increases.
“The only way out of our economic problems is for SA to get growth and jobs going, by improving the country’s investment environment,” he said.
“Macroeconomics theory talks about the tendency of political systems towards ‘fiscal deficit bias’, as politicians prefer to increase spending and lower taxes even when economic conditions do not warrant it.
“A key question at this critical moment is whether SA’s GNU and broader civil society will be able to show the kind of leadership and economic sense required to overcome the current impasse in a manner that sets the economy up for a new wave of growth and job creation.”
Additional reporting by Tiisetso Motsoeneng
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