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South Africa’s budget impasse teeters on the edge of an already fractured GNU

22 April 2025 | Story Terrance Molobela | Photo Supplied

Opinion article by Terrance Molobela, Lecturer in the Department of Public Administration and Management, University of the Free State.

Despite fierce opposition of the already passed National Fiscal Framework, the African National Congress (ANC) convened several meetings within and outside the Government of National Unity (GNU) mostly pioneered by its Secretary-General Fikile Mbalula who recently stated: “We are not trickers; we do not trick people. We engaged with ActionSA, and they said they do not want VAT; that’s not tricking anyone.”

One thing is clear, there is nothing binding on the GNU that after receiving additional budget proposals to raise revenue from ActionSA and Building One South Africa (BOSA), the VAT hike will be dropped. In fact, on 16 April 2025 in an interview with Newzroom Afrika the Minister of Finance Enoch Godongwana said: “I am not married to any increase or percentages”. The minister pointed out that the initial budget without VAT hikes was still on the table, however, he further highlighted that VAT increases remain Parliamentary policy issues. His advice is: “If you remove the 0.5% VAT increase, you must find an equivalent amount on the expenditure side to ensure the fiscal framework remains balanced.”

As the budget impasse stands, people need to understand that once the budget is passed by Parliament, the minister cannot unilaterally reverse the VAT increase. This is cemented by Section 12 of the Public Finance Management Act and Section 7(4) of the VAT Act. This ball is in Parliament’s court to reverse the budget and revenue proposal once alternative revenue generation proposal have been brought forward.

With 1 May 2025 looming, South Africans have a bitter pill to swallow as they will be charged R15.50% for every R100 spent. The media covered the VAT increase with rage and concerns from various communities across the country. The people feel punished by the GNU, while facing deep-rooted socio-economic problems like inequality, high unemployment, and poverty.

Despite the GNU deadlock and its fiscal crisis, several members within the ANC have unanimously admitted that the party has grossly failed to reach an amicable consensus within the GNU to freely support the VAT hike, hence it is vehemently opposed from all sides. Some critics suggest that the ANC-led government is poised to drop the VAT hike, but it’s unclear as to where and how the minister of finance would find the money to plug the fiscal gap.

Marriage may be sweet, but divorce is bitter

Both the ANC and DA knew ahead of time that forming the GNU with other parties was what is commonly known as “a marriage of inconvenience”. Before and on the wedding day, you both blind yourselves because of the sweet cake, joy, guests, and presents that long-lost friends will bring along. You create this beautiful picture that only exists in your head and hope that the other party shares a similar picture. But after you have entered the marriage, you then realise that you each functions on different levels and do not have complementary ideologies.

The DA’s ideologies on governance and policy is far the opposite of the ANC, and although it could work, the ANC have demonstrated their thirst for power and control, hence, their ability to share power equally remains a foreign language. DA leader John Steenhuisen has made it clear that they will not sacrifice citizens’ votes for a piece of cake but would rather fight and support a budget that caters for economic growth and job creation. This they have demonstrated by challenging the legality of the budget process in court, with hopes of blocking the implementation of a VAT increase, which has led to widening the rift within the fragile GNU.

The authenticity of the parliament – flawed budget process?

Amid mounting tensions created by the budget impasse, the National Assembly narrowly facilitated the national budget process, the DA, Economic Freedom Fighters (EFF), and uMkhonto weSizwe (MK) party rejected the budget, whilst the ANC-led government through coalescing outside GNU with parties like Action SA, secured majority support for the approval of the fiscal framework.

Parliament passed the 2025 National Fiscal Framework without the formal amendment of the mounting VAT and tax hikes. This was approved without binding recommendations, although budget committees suggested that the VAT and tax hikes be reconsidered at a later stage. As 1 May 2025 approaches for the VAT hike to kick in, reversing the VAT increase would be a lengthy process because it appears untenable.

The DA leader raised concerns that the Finance Committee acted ultra vires of the standing rules of Parliament, meaning the budget was not properly presented to the committee to reject or approve it, and that only a single proposal from the ANC was prioritised, whilst neglecting the DA proposal. This legal anomaly occurred under the watch of the National Assembly on the 2 April 2025. Hence, the DA have been challenging the budget.

One would ponder – “if the tables were turned, and the DA was in the position of the ANC and visa-versa, would the National Assembly opted to approve the budget framework?” I guess we would never know.

Where does the road lead now?

GNU: the ANC has already held several talks and meetings indirectly citing that the DA should hand over their divorce papers. But the president of the ANC needs the DA to remain in the coalition because of further economic shocks, which saw R1 trillion wiped out on the Johannesburg Stock Exchange (JSE). Investor confidence in the economy has hit rock-bottom, and the current trade wars have put pressure on multiple businesses to tighten their investment belts until it is safe to continue investing. The DA has not yet declared whether they want a divorce, but critics suggest that the Deputy President, Paul Mashatile, would be delighted if the DA left since they rejected the very same budget that they expect to reap from. As for ActionSA, it is unclear whether they have decided to join the GNU, but its leader Herman Mashaba has shown interest in joining the GNU, which most critics have weighed as a betrayal to the people of South Africa.

Ordinary citizens: It is time for South Africa’s citizens to brace themselves for the oncoming VAT hike. As much as the minister of finance has argued that it was necessary to stretch the already deeply embedded financial distress of citizens grappling with over-taxation of income, the bitter pill remains theirs to swallow. The 0.5% in VAT carries an underestimated distress for households who will be left alone to deal with increased prices of goods, services, and essentials.

What should be done thus far?

More tax on the people, goods and services kills jobs, which results in reducing revenue generation by government. To avoid further inflationary hikes, the government needs to approach the problem in an unusual way – this means placing strict rules and regulations on any government transaction that takes effect, deal with corruption and mismanagement at every sphere of government. Monies lost and stolen through unfinished projects should be recovered and ensuring that all state projects remain frequently monitored.

The government needs to change its ways of approaching industries, companies, and businesses to create jobs, and transfer some of their skills to the people of South Africa. The youth is yearning to be seen, supported, trained, and placed into the real world to unleash their potential, which might be something the economy needs to re-establish and position itself in the right direction to stir desired economic growth.

News Archive

Inaugural lecture: Prof. Phillipe Burger

2007-11-26

Attending the lecture were, from the left: Prof. Tienie Crous (Dean of the Faculty of Economic and Management Sciences at the UFS), Prof. Phillipe Burger (Departmental Chairperson of the Department of Economics at the UFS), and Prof. Frederick Fourie (Rector and Vice-Chancellor of the UFS).
Photo: Stephen Collet

A summary of an inaugural lecture presented by Prof. Phillipe Burger on the topic: “The ups and downs of the South African Economy: Rough seas or smooth sailing?”

South African business cycle shows reduction in volatility

Better monetary policy and improvements in the financial sector that place less liquidity constraints on individuals is one of the main reasons for the reduction in the volatility of the South African economy. The improvement in access to the financial sector also enables individuals to manage their debt better.

These are some of the findings in an analysis on the volatility of the South African business cycle done by Prof. Philippe Burger, Departmental Chairperson of the University of the Free State’s (UFS) Department of Economics.

Prof. Burger delivered his inaugural lecture last night (22 November 2007) on the Main Campus in Bloemfontein on the topic “The ups and downs of the South African Economy: Rough seas or smooth sailing?”

In his lecture, Prof. Burger emphasised a few key aspects of the South African business cycle and indicated how it changed during the periods 1960-1976, 1976-1994 en 1994-2006.

With the Gross Domestic Product (GDP) as an indicator of the business cycle, the analysis identified the variables that showed the highest correlation with the GDP. During the periods 1976-1994 and 1994-2006, these included durable consumption, manufacturing investment, private sector investment, as well as investment in machinery and non-residential buildings. Other variables that also show a high correlation with the GDP are imports, non-durable consumption, investment in the financial services sector, investment by general government, as well as investment in residential buildings.

Prof. Burger’s analysis also shows that changes in durable consumption, investment in the manufacturing sector, investment in the private sector, as well as investment in non-residential buildings preceded changes in the GDP. If changes in a variable such as durable consumption precede changes in the GDP, it is an indication that durable consumption is one of the drivers of the business cycle. The up or down swing of durable consumption may, in other words, just as well contribute to an up or down swing in the business cycle.

A surprising finding of the analysis is the particularly strong role durable consumption has played in the business cycle since 1994. This finding is especially surprising due to the fact that durable consumption only constitutes about 12% of the total household consumption.

A further surprising finding is the particularly small role exports have been playing since 1960 as a driver of the business cycle. In South Africa it is still generally accepted that exports are one of the most important drivers of the business cycle. It is generally accepted that, should the business cycles of South Africa’s most important trade partners show an upward phase; these partners will purchase more from South Africa. This increase in exports will contribute to the South African economy moving upward. Prof. Burger’s analyses shows, however, that exports have generally never fulfil this role.

Over and above the identification of the drivers of the South African business cycle, Prof. Burger’s analysis also investigated the volatility of the business cycle.

When the periods 1976-1994 and 1994-2006 are compared, the analysis shows that the volatility of the business cycle has reduced since 1994 with more than half. The reduction in volatility can be traced to the reduction in the volatility of household consumption (especially durables and services), as well as a reduction in the volatility of investment in machinery, non-residential buildings and transport equipment. The last three coincide with the general reduction in the volatility of investment in the manufacturing sector. Investment in sectors such as electricity and transport (not to be confused with investment in transport equipment by various sectors) which are strongly dominated by the government, did not contribute to the decrease in volatility.

In his analysis, Prof. Burger supplies reasons for the reduction in volatility. One of the explanations is the reduction in the shocks affecting the economy – especially in the South African context. Another explanation is the application of an improved monetary policy by the South African Reserve Bank since the mid 1990’s. A third explanation is the better access to liquidity and credit since the mid 1990’s, which enables the better management of household finance and the absorption of financial shocks.

A further reason which contributed to the reduction in volatility in countries such as the United States of America’s business cycle is better inventory management. While the volatility of inventory in South Africa has also reduced there is, according to Prof. Burger, little proof that better inventory management contributed to the reduction in volatility of the GDP.

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