BY: Saneliso Mlambo
The unexpected postponement of South Africa’s 2025 Budget Speech, originally scheduled for February 19, has elicited a spectrum of reactions from financial experts and political figures. The delay, unprecedented in the nation’s post-apartheid history, stems from internal disagreements within the coalition government over a proposed 2% increase in Value-Added Tax (VAT).
Lance Collop, a chartered accountant and founder of Collop Tax Collective, perceives both positive and negative aspects to the postponement. He suggests that the delay indicates a commitment within the Government of National Unity (GNU) to achieve consensus rather than allowing a single party to dominate. However, Collop expresses concern over the timing, noting that the VAT increase issue seemed to surface only on the day of the Budget Speech.
Frank Blackmore, lead economist at KPMG, highlights the uncertainty generated by the sudden cancellation. He points out that while most market analysts did not anticipate a VAT increase in this budget, recent speculation about a 2% hike has caused disbelief, primarily due to its potential impact on the country’s economically disadvantaged majority.
The postponement has also exposed ideological rifts within the coalition government. The African National Congress (ANC) proposed the VAT increase to address funding gaps in the education budget and support social spending. However, the Democratic Alliance (DA), a key coalition partner, opposed the hike, arguing it would harm the economy and disproportionately affect the poor. DA leader John Steenhuisen stated that the VAT increase “would have broken the back of our economy.”
The Economic Freedom Fighters (EFF), not part of the coalition, also condemned the postponement. EFF leader Julius Malema described the situation as evidence of a collapsed government.
Financial markets responded negatively to the postponement. The South African rand weakened, dropping to R18.54 against the US dollar from R18.40 the previous day. The main stock index also declined, with retailers—who would be adversely affected by a VAT increase—experiencing significant losses.
The Budget Speech has been rescheduled for March 12, 2025. In the interim, the Treasury faces the challenge of identifying alternative funding mechanisms to finance the country’s spending plans. Finance Minister Enoch Godongwana emphasized the need for cabinet members to confront the trade-offs required to fund national priorities, noting that options like raising corporate taxes could be counterproductive given South Africa’s already high rates compared to peers.
This postponement underscores the complexities inherent in coalition governance, especially when addressing critical economic policies. The coming weeks will be pivotal as the government strives to reconcile differing viewpoints and present a unified fiscal strategy.