Finance minister Enoch Godongwana.(Brenton Geach/Gallo Images via Getty Images)
With VAT increases off the table, Finance Minister Enoch Godongwana must find a new path to making up the budget shortfall while staying true to the treasury’s vow to stabilise the country’s debt.
Godongwana is set to return to parliament on Wednesday to present a revised budget, the third attempt since the first one in February, and the second tabled in March.
Both ended in failure over the controversial VAT increase, with the Democratic Alliance (DA), the second largest party in the national coalition government, leading opposition to it.
The minister has to fill a R75 billion fiscal gap without derailing essential services or sacrificing investor confidence.
His tabling of Budget 3.0 comes after his VAT hike proposals were met with political backlash, legal challenge and threatened to collapse the government of national unity (GNU).
In the end, Godongwana climbed down on the VAT increase, and the Western Cape high court ruled in favour of an application by the DA for an order setting aside the adoption of the fiscal framework through which it would have been effected.
Another failure to pass the budget could trigger automatic spending ceilings that would throttle funding for key state services and already cash-strapped state-owned enterprises such as Eskom, Transnet and SAA.
This comes as the International Monetary Fund projects that the country’s debt-to-GDP ratio could hit 88.7% by 2030, far above the treasury’s forecast in March that it would stabilise at 76.2%.
By February, debt service costs had already risen to 21.7% of annual tax revenue, exceeding the combined allocations for health and defence.
Addressing parliament a month later, Godongwana warned that the growing cost of borrowing threatened to divert funds away from critical social programmes and much-needed investment in economic growth, urging a reversal of the trend before it further eroded the state’s developmental capacity.
Deputy Finance Minister David Masondo offered a glimmer of hope last week, suggesting that most sticking points had been resolved during extensive consultations with coalition partners. “A fourth budget will not be necessary,” he told investors in Cape Town on Thursday.
He added that the revised budget would aim to strike a difficult balance between raising revenue, cutting expenditure and spurring investment, all under the constraints of coalition politics.
The GNU, formed after no party won a parliamentary majority in last May’s general elections, with the ANC’s support slumping to 40%, has so far struggled to agree on economic priorities.
Wednesday’s budget will be tabled in the absence of key GNU leaders, including President Cyril Ramaphosa, who is in the US with DA leader John Steenhuisen to attempt to repair South Africa’s troubled relationship with the administration of President Donald Trump, and Deputy President Paul Mashatile, who is in France.
Member parties of the coalition have questioned where Godongwana will find the money to close the budget deficit.
Fiscal consolidation will require politically difficult decisions, Rise Mzansi leader Songezo Zibi said. “While we are yet to see if, and how much, these allocations will be cut — there is little doubt that they will have an adverse impact on many South Africans.”
For example, the departments of basic education and health allocate only between 4% and 5% of their respective budgets on capital expenditure — the expansion of services to South Africans who desperately need them.
Such allocations are not enough even without budget cuts, Zibi said, adding: “South Africans demand and deserve more, but the fiscal limitations cannot be wished away.”
He added that there was also an urgent need to change the culture of spending in government, which allows for waste and theft.
The DA’s finance spokesperson Mark Burke said the party welcomed the decision to abandon the VAT hike and urged the treasury to instead focus on cutting non-essential government expenditure.
“We need to protect frontline services and instead slash spending on the parts of government that only benefit the fat cats,” he said.
For ActionSA, the pending budget is an opportunity to restore fiscal discipline and reorient public spending toward development.
“Budget 3.0 must lay the foundation for sustainable economic growth. With GDP growth at just 0.8% for 2024, far below peer countries, South Africa urgently needs structural reforms to address unemployment, inequality, and poverty,” the party’s Alan Besley said.
In her weekly newsletter, Business Leadership South Africa chief executive Busi Mavuso said it was important to have credible fiscal planning.
“It is critical that Budget 3.0 strikes the right balance of fiscal prudence,“ she said, adding that the growth outlook has deteriorated since February, meaning there would be less tax revenue and balancing the books would be a bigger headache.
Mavuso said that the government must protect the technical independence of institutions like the treasury and the South African Reserve Bank, warning against short-term political expediency.
“The financial system is technical and requires institutions that are protected from political interference,” she said.
The key challenge was identifying expenditure cuts that do the least harm to growth and service delivery. “This is a task best done by technocrats and our treasury is the right institution to do it,” she added.
Godongwana’s immediate task is to deliver a credible budget that satisfies his coalition partners, reins in spending and reassures markets, Mavuso said.
If successful, it could be the first step toward long-term fiscal recovery. If not, South Africa risks further credit downgrades, deteriorating public services and a deeper slide into debt.
Mavuso added that Budget 3.0 is not just about balancing books but about restoring faith in South Africa’s capacity to govern its economy.