Alert No 03 /2025 20 February 2025
Some likely consequences and conclusions arising from the postponement of the Budget
A number of possible conclusions and consequences may follow the unprecedented postponement of the Budget presentation in Parliament yesterday, both political and economic.
·
GNU fragility: Politically, the affair once again
showed up the fragility of and divisiveness in the Government of National Unity
(GNU), the tendency of the African National Congress (ANC) to think it can make
important policy and legislative decisions on its own without properly consulting
the other parties, and the resultant need to vastly improve the GNU’s mechanisms
for multi-party consultation, cooperation and achieving consensus on
contentious and divisive issues. Without it, the GNU could eventually collapse
in disagreement, paving the way for radical leftwing populist parties to step
into the void.
·
Last-minute politicking: The above is further illustrated
by the fact that according to Parliament itself, the Budget process takes about
14 months to complete from start to final approval. Which means the GNU parties
had ample time to negotiate the proposed 2% VAT increase or any other
contentious issues or disagreements instead of leaving it to the very last
minute after Finance Mininster Enoch Godongwana was already supposed to have
started his Budget speech yesterday. This suggests that party-political politicking
and brinkmanship took precedence over the interests of the country. It also
created an unnecessary atmosphere and perceptions of a major crisis that led to
more policy and governance uncertainty with resulting negative movement in the
markets (see below).
·
Negative perceptions for ANC: Politically the ANC got plenty of
egg on its face – Godongwana’s proposed 2% increase in the VAT rate would have
demonstrated to many South Africans that despite the ANC’s hiding in last
year’s elections, the party still does not put their interests first and cares
little about the enormous plight of the poor. The Democratic Alliance (DA) will
seek to gain maximum benefit for itself from such a perception, as will
opposition parties like the Economic Freedom Fighters (EFF) and uMkhonto we
Sizwe Party (MKP).
·
ANC Alliance tensions: It is not among the parties of the
GNU alone that this has caused further divisions with some parties very
reluctantly accepting the postponement as they did not really have any alternatives;
COSATU rejected the ANC’s 2% proposal, while the SA Communist Party (SACP), the
ANC’s other formal ally, has objected to it not having been consulted by Minister
Godongwana while he did consult the DA and all other GNU parties. All parties
were also given the opportunity to attend a consultative meeting of whips in
Parliament prior to the postponement. The SACP is not represented in Parliament
but prefers embedding its members in the ANC.
·
Government out of money: At the economic level, the affair
again confirmed that the government is running out of money as well as options
to secure additional revenue – it was basically limited to a choice between
more borrowing (with an already worrying debt situation hovering) or raising
more taxes (which led to the 2% VAT proposal).
·
Commitments and obligations: It also raises serious questions
over the government’s ability to honour all its financial obligations and
commitments in a crisis situation, which could see a number of vital government
functions coming to a standstill or being seriously impacted, particularly
affecting civil servants’ wages, and sectors such as health, education, social
support grants, police and defence and much more. Effectively such a situation
could cause a government shutdown.
·
Drop in GDP – bigger crisis: There are concerns that failure to
agree on a Budget against a background of spiralling spending and limited
fiscal options, the country may face another further significant drop in GDP
and an even bigger crisis in the longer term. The South African motor
manufacturing and agriculture industries, among more, could suffer serious
setbacks if South Africa is kicked off the African Growth and Opportunity Act
(AGOA)as threatened by Donald Trump. This, coupled to an irresponsible VAT
increase that could trigger social unrest, the high level of municipal debts,
and the many other ills facing the country, together with a Budget deadlock,
could plunge the country into further crisis where unemployment and poverty may
worsen, and GDP may fall. However, the political parties of the GNU have in the
past demonstrated resilience to adversity and an ability to overcome such
setbacks, and it is very likely that they will again come together around
securing a more positive result. The threat, however, remains.
·
Reaction in the markets: The postponement of the Budget
presentation also led to notable negative reactions in both the financial
markets and the value of the rand. By early this morning, the rand had weakened
by approximately 1% against the US dollar, trading at R18.57 from an earlier
R18.33; the Johannesburg Stock Exchange's (JSE) Top-40 index experienced a
decline of about 0.5%; and the postponement had triggered the sharpest selloff
in the country's government bonds since December, with the 2052 maturity down
as much as 1 cent.
·
Policy & implementation
uncertainty: This
postponement has also again raised
concerns about policy uncertainty, implementation delays, and investor
confidence at an already precarious time for South Africa. Such political
discord and fiscal uncertainty could further impact South Africa's economic
stability and market performance, with parallel impacts on its political
performance and stability.
·
More negative optics internationally: Coming so shortly after the
negative publicity surrounding South Africa’s stand-off with Rwanda over the
war in the eastern DRC, the controversy surrounding the Expropriation Act, and the
Trump Administration taking aim at South Africa over its domestic and
international policies with threats of punitive financial and economic
measures, the optics created by the Budget postponement further paints South
Africa in a very negative light with investors, trade partners and others. It
may be causing significant damage in this regard.
·
Crisis management: The sum-total of it all is that
President Cyril Ramaphosa is increasingly seen as a beleaguered president with
little room to manoeuvre, while the GNU that came to his rescue last year
remains divided and increasingly seems to be engaged in crisis management. In
the meantime, growth, employment and poverty eradication continue to be the
victims. Political stability could soon be added to this list if care is not
taken.
Stef
Terblanche
Political Analyst
