The head of Ninety One, SA’s largest asset management firm, says the unprecedented postponement of the budget just minutes before it was scheduled to be tabled in parliament is not a crisis, but rather points to democracy at work.
Hendrik du Toit, founder & CEO of Ninety One, said it was important to put the postponement of the budget after differences over tax hikes in perspective.
“This is the reality of coalition politics, this is our government of national unity (GNU) in action. There is no time to panic. This is democracy at work. The minister is part of a unity government and he and the president have respected that.
“Until SA starts to grow faster we need to make trade-offs. It is time for hard decisions on costs and aggressive growth-friendly policies,” he said.
“The minister has wisely postponed the budget until March 12, which was the traditional budget month for SA, and there is enough time to hammer out sufficient consensus among the GNU partners.
“It is high noon for SA on the fiscal front. We need a credible budget, a long-term growth plan and the discipline to execute on it. South Africans need jobs. The economy should be the absolute priority. Let’s use the month to get agreement on that,” Du Toit said.
The rand weakened significantly on Wednesday after the unprecedented cancellation of the budget speech, highlighting cracks within the GNU.
Set to announce a big increase in VAT, the speech was cancelled at the eleventh hour after disputes about the tax hike, marking the first time in democratic SA that the budget speech was delayed.
Rand
The local currency weakened to R18.58/$ after the cancellation, from R18.33 earlier in the day.
Sylvester Kobo, Stanlib’s deputy head: fixed income and head: rates & listed credit, said he would not characterise the budget’s postponement situation as a significant blow to the government’s credibility, and the market is aware of the GNU dynamics which require consensus, and South Africans should “applaud” the process.
“That said, ideally these deliberations should occur privately to maintain confidence. While this situation may temporarily affect sentiment, I believe that reaching negotiated outcomes on these critical matters will ultimately benefit SA,” he said, adding that the more decisions are widely debated, and consensus is formed around them, the better the outcomes.
“Ultimately, the market cares about the fundamentals. Given that the National Treasury has already announced that issuance levels will remain unchanged, if they [Treasury] can’t get the VAT increase through then they will need to find alternative funding sources,” Kobo said.
“This uncertainty may lead to negative reactions in the bond market as we consider the various implications leading up to the budget presentation. Overall, it’s essential to prioritise constructive dialogue and collaboration to navigate these challenges effectively.”
The main sticking point is the proposal to increase VAT from 15% to 17%.
Business Day reported on Wednesday that the Treasury would increase social grants by above inflation, freeze the fuel levy and increase the basket of zero-rated goods to shield the poor from the decision to hike VAT for only the second time in democratic SA.
The decision to increase VAT was taken after weighing different options, including doing away with the social relief of distress (SRD) grant and taking on more debt, Business Day understands.
Both options were considered the least favourable due to several reasons, including keeping ratings agencies at bay.
The money expected to be collected from the VAT increase is expected to plug holes in the education, social wage and education budgets — particularly keeping thousands of teachers’ jobs in KwaZulu-Natal.
The delay introduces uncertainty into the economic outlook and raises questions about the GNU’s ability to reach consensus on critical fiscal policies.
— Shaun Murison, senior market analyst at IG Markets
The most recent time the Treasury lifted the VAT rate was in the 2018/19 budget, when then-finance minister Malusi Gigaba increased it from 14% to 15%.
Without any zero-rating or exemptions, VAT is inherently a regressive tax, turning into a financial burden on the poor in a country riddled with deep-seated poverty, unemployment and a weak economy.
President Cyril Ramaphosa said last year that the GNU would look to expand the basket of essential food items exempt from VAT and undertake a comprehensive review of administered prices.
According to law firm Cliffe Dekker Hofmeyr, when VAT was introduced on September 30 1991 at 10%, only two food items were zero-rated: brown bread and maize meal.
Shaun Murison, senior market analyst at IG Markets, said the “unprecedented postponement” of SA’s budget highlighted the challenges of governing within a coalition framework.
“The fact that the 2025 budget is the first in SA’s democratic history to be compiled by a nonmajority government underscores the novelty and complexity of the situation,” Murison said.
“The delay introduces uncertainty into the economic outlook and raises questions about the GNU’s ability to reach consensus on critical fiscal policies,” he said.
“The leaked tax summary and subsequent adjournment of the National Assembly signal a significant level of internal conflict. This is reflecting negatively in the rand, which softened about 10c per dollar directly on the news, which hampers investor sentiment.”
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