The cabinet approved submission of the third iteration of the budget to parliament on Wednesday, a move that underscores a cautious political realignment in the government of national unity (GNU) amid persistent fiscal challenges.
Finance minister Enoch Godongwana will table the budget covering the next three years in the National Assembly on May 21.
The cabinet’s approval followed intense negotiations between members of the GNU, particularly the DA, which contested the second iteration of the budget in court because of its proposed 0.5 percentage point VAT increase in 2025 and 2026.
The matter was settled out of court with Godongwana withdrawing the second version of the fiscal framework and its proposed VAT increases. That required the Treasury to find R75bn in savings over the next three years.
Where these savings have been made will be the central element of Wednesday’s budget.
The unfolding drama has raised eyebrows in the investor and business community, with some reading between the lines for indications of how the trading of political stability for a fiscal headache would hold up.
Deputy finance minister David Masondo told an RMB investor conference in Cape Town on Wednesday he was “100% certain” there would not need to be a budget 4.0. “I am very confident we will get the budget over the line.”
Tatonga Rusike, an economist at Bank of America’s Sub-Saharan Africa unit, said the new budget would serve more as a gauge of political unity than fiscal arithmetic or forecasts. In a note to clients, Rusike said much had shifted since the February and even March budget, which was premised on “2025 real GDP growth of 1.9%, and inflation of 4.3%".
“The world has changed since then,” Rusike said, estimating that the Treasury is likely to pencil in a more realistic range of 1.5%-1.6%, “which would still underestimate the revenue gap to our 1.2% estimate”.
That range is likely to reduce the revenue gap to about R20bn-R30bn — combined with the expected VAT shortfall, this would leave an overall fiscal gap of about R40bn, he said. “If that’s the case, spending cuts would be moderate, and the budget is likely to get buy-in from GNU partners. Markets would probably like a ‘no-increase-in-issuance’ budget,” he said.
In a more favourable scenario, Rusike estimated the fiscal hole might not exceed R35bn if higher tax receipts from the gold mining sector are factored in. In that case, the Treasury could opt for modest spending cuts.
"[This scenario] would make it easier for the major political parties to approve the budget. An endorsement by the ANC-DA would signal an easing of GNU tension, and the markets would like that.”
Under the more conservative scenario, in which the GDP growth forecast is 1.2%, the revenue gap could widen by as much as R73bn, according to Rusike.
In addition to the fiscal blueprint, the cabinet also approved the publication of the Mineral Resources Development Bill for public comment.
Minister in the presidency Khumbudzo Ntshavheni said the draft bill aimed “to enhance investor confidence by removing red tape and providing regulatory certainty to attract and retain investment. It is part of the amendments to the existing Mineral and Petroleum Resources Development Act.
“The bill seeks to address key regulatory gaps, streamline licensing processes, ensure equitable distribution of mining benefits and promote local processing and manufacturing industries by ensuring that more raw minerals are transformed into higher-value products within the country,” she said.
The bill proposed to introduce a licensing regime for artisanal and small-scale mining operations, Ntshavheni said. It also sought to strengthen regulatory measures to combat unlawful activities while ensuring clear prohibitions and enforcement mechanisms regarding illegal mining.
The cabinet adopted a critical minerals strategy for SA that Ntshavheni said aimed to maximise the country’s potential in the global market of critical minerals, particularly those crucial for the country’s just energy transition plan and the ones that gave SA a comparative advantage. These included platinum group metals, lithium, cobalt and rare earth elements used for electric vehicles, renewable energy and other green initiatives.
With Hilary Joffe
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.