PETER BRUCE: DA may finally have found its mojo

For the first time in our 30 years as a democracy the government has failed to produce a budget on the date and time it announced.

A new date — March 12 — for the 2025 budget had to be set after a cabinet meeting of the governing coalition failed to agree on a 13.3% increase in VAT, to 17%, proposed by the ANC finance minister Enoch Godongwana. 

The consequences are far-reaching and possibly mark the moment the ANC actually acknowledged its loss of power here. As the cabinet’s failure to agree on the budget crystallised just after 2pm, the rand slumped. It was also clear that despite the presence in the National Treasury of a deputy finance minister from the DA, he had either been ignored during the preparation of the budget or had been unable to convince his party to support it. 

I suspect it was most probably the former, and if it was the DA may finally have found its mojo inside the government of national unity (GNU). About time! And having got this far it would be humiliating and damaging for the party if by March 12 it were to roll over and agree to any compromise that increases the cost of living. Wednesday belonged to DA leader John Steenhuisen. 

In a statement, he declared the postponement “a victory for the people” and that the proposed VAT increase (which it and practically everyone kept incorrectly calling 2%, rather than two full percentage points) “would have broken the back of our economy”. 

Maybe. You have to agree though that whatever Godongwana and his team must have been thinking, and whatever they may have been planning to remove from VAT altogether, a hoick from 15% VAT to 17% as the only answer to a 20 year-old funding problem is intellectually lazy, politically disconnected and morally bankrupt. A responsible finance minister would offer their resignation after a humiliation like this, and a responsible leader would accept it. Obviously not here though.

Instead, later on Wednesday the Treasury was desperately trying to prevent journalists from sharing budget documents they are traditionally given under embargo before budget speeches to help them report as widely as possible on the event. It was a hopeless task though, and it seemed clear the documents were being traded on in the markets. Bond yields (the effective interest rate bond investors look for) shot up after the postponement was announced. That’s our borrowing becoming more expensive. 

In a way Godongwana gifted the DA a vital reprieve. The party has been found wanting inside the GNU in recent months as President Cyril Ramaphosa has enacted a string of laws that rub the DA and its constituency up the wrong way. The arrival of Donald Trump in the White House, and his quick attack on the Expropriation Act, newly-enacted by Ramaphosa, also caught the DA off-guard — it had opposed the legislation but in the wake of Trump’s attack found itself having to briefly defend it before recovering its poise with a pledge to oppose the entire thing in court. 

A clumsy VAT increase was manna from heaven for Steenhuisen, but he and his deputy finance minister, Ashor Sarupen, need to come up with alternatives for Godongwana pronto. A 17% VAT would raise about R60bn in new money each year, and before the budget the DA had proposed one-off spending cuts of close to half that, including cutting all training authorities (the so-called Setas) and the National Skills Fund, the Treasury’s own R3bn international relations budget, and military deployments in the Democratic Republic of Congo. It also has called for a review of all 286 publicly funded entities. 

All of that is somewhat helpful, but it doesn’t get Godongwana over the line next month. He is a prisoner of the ANC’s joint commitments to both the transformation of society and economic growth. But the way transformation (or “inclusivity”) is used by the ANC works like kryptonite to conventional paths of economic growth. 

BEE, the most blunt of the transformation instruments used by the ANC (soon to be joined by enforceable racial quotas in all local companies), requires any fixed investment in SA to make space for local black partners. The outcome has been extremely poor levels of new fixed investment and, as a result, perilously low economic growth. 

Four paths

There are only four paths before Godongwana as he searches for ways to fund the state: he can raise taxes, cut costs, borrow more or grow GDP. In the absence of policies better suited to attracting investment, with taxes clearly not a good idea and a market in no mood for new borrowing, his best shot on March 12 would be to find some budget cuts. 

In effect, the entire budget will have to be redone. The Budget Review that normally accompanies a speech would have contained graphs and forecasts that no longer represent budget consequences both realistic or fancifully imagined. It is all a cock-up. 

In the medium term Godongwana would have been looking at the three-year effect of the VAT increase. At about R30bn a year for every additional percentage point of VAT — before the DA put its foot down on new taxes — that’s about R180bn he would have had, to pay teachers and police and perhaps build some schools and roads. 

But he doesn’t have it now. Steenhuisen was insisting on Wednesday afternoon that the DA wanted growth-enhancing alternatives, and that will now put him and his colleagues under pressure too. The decision to postpone the budget, he told reporters, was “responsible” but what was needed were growth-enhancing reforms. So far so good, but what exactly would those reforms need to be?

I hope the DA does its thinking for the next few weeks out loud. Their suggested cuts are one thing. Growth will be a far tougher test. 

• Bruce is a former editor of Business Day and the Financial Mail.