Navigating Fiscal Gaps, Political Tensions

Background to the unprecedented delays

Finance Minister Enoch Godongwana’s 2025 budget has faced significant and unparalleled obstacles, leading to two prior failures to secure parliamentary approval and an impending third attempt now looming.

This situation is historically unique for South Africa, marking the first instance since the end of white-minority rule in 1994 that a national budget has not been delivered as scheduled.

The initial postponement in February 2025 directly resulted from sharp disagreements within the newly formed Government of National Unity (GNU). This fiscal uncertainty triggered negative market reactions, including a noticeable plummet in the South African currency against the US dollar.

The repeated failure to pass the budget underscores a fundamental challenge to the operational effectiveness of South Africa’s newly formed coalition government.

This goes beyond a mere budgetary vote; it represents a critical test of the GNU’s viability and its ability to forge consensus on national priorities. The budget, therefore, functions not merely as a fiscal document but as a crucial political battleground, reflecting underlying power struggles and deep ideological rifts among the governing partners.

The contentious VAT increase and its reversal

The central point of contention in the budget negotiations revolved around a proposed increase in the VAT rate. While initially floated as a jump from 15% to 17%, the final proposal involved a phased approach – 0.5% in May 2025 and another 0.5% in April 2026, targeting a total rate of 16%.

This move faced fierce opposition from across the political spectrum. Parties including the DA, EFF, MKP, and FF+, alongside labour unions such as COSATU and SAFTU, strongly criticised the VAT hike, labelling it regressive and harmful to low-income households.

Lobby groups added their voices, calling the tax “anti-poor” and ill-timed given rising living costs.

The DA, a key coalition partner, emphasised that it could not support a tax “that would break the back of our economy.”

Faced with this resistance, the National Treasury confirmed the cancellation of the VAT hike on April 24th, 2025. Minister Godongwana followed by withdrawing the Appropriation Bill and Division of Revenue Bill, allowing room for expenditure adjustments.

While the move eased political tensions, it created a significant funding gap that now requires creative fiscal management.

Political dynamics and legal challenges

The VAT debate also gave rise to legal disputes. A joint challenge by the DA and EFF in the Western Cape High Court resulted in the suspension of the VAT hike and a judicial review of the fiscal framework.

This development not only reinforced the role of legal institutions in fiscal governance but also introduced new procedural dynamics into the budgetary cycle.

The GNU, formed after the ANC lost its majority in the 2024 elections, continues to wrestle with internal tensions.

Opposition parties have used the budget process to highlight their influence, particularly ahead of the 2026 local elections.

Public disputes over who deserves credit for blocking the VAT increase underscore the fragile nature of coalition politics in this new era.