South Africa’s coalition in peril after ANC passes budget without partner

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

South Africa narrowly passed a budget framework on Wednesday without the support of the African National Congress’s biggest partner, leaving the country’s fragile coalition on the brink of falling apart.

President Cyril Ramaphosa’s party had to rely on smaller parties to vote for the critical measure after the centre-right Democratic Alliance rejected a rise in value added tax, exposing deep divisions in the ruling alliance.

Leaders in the DA told the Financial Times they feared the grand coalition — which was formed after the ANC lost its majority in May — was now “done and dusted”.

The ANC “simply refused to compromise”, DA leader John Steenhuisen said, with the parties clashing for weeks over issues including controversial bills on land ownership and an overhaul of the health sector.

In an hours-long vote, the DA rejected a 0.5 per cent VAT increase this year and a further 0.5 per cent next year, which the National Treasury says is needed to fill a R60bn ($3.3bn) fiscal hole created partly by US President Donald Trump’s withdrawal of funding for HIV/Aids programmes.

Votes in favour passed by a wafer-thin margin of 194, against 182 opposing. The radical Economic Freedom Fighters and the former president Jacob Zuma’s Umkhonto we Sizwe (MK) party voted with the DA against the budget, while smaller parties such as the Patriotic Alliance voted in favour.

Analysts said the coalition had in effect unravelled. “There is a complete breakdown in trust, both personally with the president and between the parties,” said Peter Attard Montalto, managing director at consultancy Krutham. “If the DA were to stay in it would be . . . with no co-operation or trust, which seems unsustainable.”

The ANC was able to push the vote over the line thanks to the last-minute support of ActionSA, a party created in 2020 by Herman Mashaba, a businessman and former mayor of Johannesburg.

Mashaba told the FT that ActionSA only voted in favour of the budget in exchange for a commitment that all tax increases would be scrapped within 30 days.

“Our proposal is clear. The finance minister has to come back to parliament with a new budget before May 1 that contains no VAT hike,” he said.

Mashaba said he believed the era of the first coalition government was in effect “over”.

The ANC appears to have reconciled itself to the DA’s likely withdrawal from the coalition, with outspoken party chair Gwede Mantashe saying “let them walk out”. The DA had “played hardball” and made “inappropriate” demands of the ANC, he added.

Ramaphosa said on Tuesday that the DA was “defining themselves out of the GNU”, in a leaked recording by the Johannesburg-based TimesLive newspaper. “They put themselves into a cul-de-sac.”

The prospect of the pro-market DA leaving the governing coalition put pressure on the South African rand, which fell by as much as 1.6 per cent against the US dollar, making it the worst performing emerging markets currency on the day.

The cost of five-year protection against a South African default rose by about 10 basis points to about 240bp, or the highest level since the formation of the loose coalition.

Chaotic scenes unfolded as voting took place, with one MP kicked out of the chamber for interrupting. “Take your seat! Take your seat, there’s rules here!” the Speaker chided, before counting resumed again.

Speaking outside parliament after the vote, Steenhuisen said “no matter what ActionSA says, no matter how they try and spin it, the reality is there will be a VAT increase on the first of May”.

He said the DA would go to court to overturn parliament’s passing of the budget framework. “We will not be supplicants to the ANC’s attempts to simply ride roughshod over everybody else,” he said.