The term “unity” in the government of national unity (GNU) has, in recent weeks, begun to feel more aspirational than descriptive. What was initially celebrated as a pragmatic coalition aimed at economic stability and effective governance, is revealing deeper fault lines — culminating most recently in a courtroom standoff between its two leading parties.
South Africans, however, had a reason to exhale when the proposed 2% VAT increase was scaled down to 0.5% and ultimately scrapped. On the surface, this reversal appears consumer-friendly. For a household with a monthly budget of R10,000, a 0.5% hike could have meant an extra R50 in expenses — amounting to R600 annually. In a time of stagnant wages and rising costs, this relief is anything but trivial.
Yet, this policy U-turn carries a price. The National Treasury now faces a R75bn revenue shortfall — a figure that is not insignificant when viewed against the total VAT collection forecast of R499bn for 2025/26. To put this into context, the shortfall exceeds the entire national defence budget and accounts for nearly 18% of the state’s annual debt servicing costs, which hovers at R425bn.
The question now becomes: where will the adjustment come from? Whether through borrowing, budget cuts, or future tax hikes, the pain may only be deferred — not avoided. Fiscal reprieves are welcome, but they must be managed with care. The unpredictable nature of this VAT volte-face introduces a worrying degree of uncertainty into South Africa’s fiscal planning.
Economic volatility is a known disruptor, but when domestic policy becomes unpredictable, the stakes are even higher. The credibility of South Africa’s commitment to fiscal consolidation is already under scrutiny. Global ratings agencies are unlikely to view unbudgeted policy reversals in a favourable light — particularly when debt servicing is eating into national resources at this scale.
That said, the recent out-of-court resolution upholding constitutional principles is a modest win for institutional integrity. But the fact that it reached this point is less encouraging. It points to a concerning pattern of political manoeuvring overshadowing collective leadership and long-term planning. The GNU’s strength will be measured by its ability to govern coherently, not by how often its members clash over key decisions.
There are alternatives to blunt fiscal cuts. Sars has signalled that a R4bn annual investment in collection efficiency could potentially unlock R800bn in revenue — R195bn of which lies in unpaid VAT. In 2024/25, the revenue authority exceeded expectations, and has been allocated R3.5bn for the year ahead. It’s a compelling case for revenue recovery through administrative efficiency rather than burdening already-stretched taxpayers.
Still, the business sector is left grappling with a different kind of uncertainty. In preparation for the VAT increase, companies incurred costs — adjusting systems, pricing, and logistics — only for those plans to be reversed. These are not just sunk costs, but a reflection of a wider trust deficit in policy predictability.
For an economy already facing headwinds — from global slowdowns to domestic energy and infrastructure concerns — this is not the time for internal missteps. The current landscape evokes the classic game theory scenario of the prisoner’s dilemma: where two players stand to gain from co-operation but risk mutual loss through self-interest. For the GNU, national interest must come before political point scoring.
The VAT decision may have spared consumers immediate pain, but the long-term cost of policy uncertainty may be steeper. One hopes the lesson has been learned.
• Makhoba is economist and lead specialist: research & insights at Liberty, the insurance and asset management arm of the Standard Bank Group
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