ZA-South African Budget Postponed Amid VAT Hike Dispute: What This Means for the Economy

South Africa’s national budget was unexpectedly delayed, marking a historic moment in the post-apartheid era due to discord within the ruling coalition over a proposed VAT hike. The disagreement has not only postponed the budget but also led to a significant drop in the rand’s value and government bonds.

Unprecedented Budget Delay

• Announcement: Speaker Thoko Didiza informed the National Assembly that the budget speech, initially set for February 19, 2025, would now occur on March 12.
• Reason for Delay: The African National Congress (ANC) and Democratic Alliance (DA), the two largest parties in the coalition, couldn’t agree on a proposed 2 percentage point increase in VAT to 17%.

Economic and Political Fallout

• Market Reaction: The rand fell approximately 1% against the dollar, with the 2052-dollar bond also declining.
• Coalition Stability: Political analyst Louw Nel from Oxford Economics highlighted the delay as raising “serious questions about the coalition’s ability to deal with major disagreements,” leading to weeks of uncertainty.

Context of Dispute

• Historical Context: This is the first time since the end of apartheid that the ANC needs coalition support to pass the budget after losing its parliamentary majority.
• Past Disagreements: The ANC and DA have had previous conflicts over education and health policies, but this budget delay was unexpected.

Implications for South Africa

• Economic Challenges: The VAT increase was meant to address revenue shortfalls and fund social and education spending, amidst anemic growth and climbing public debt (currently at about 75% of GDP).
• Public Reaction: Strong opposition from political parties and unions exists, emphasizing the regressive impact on the poor despite “zero-rated” items for VAT.

What’s Next?

• Further Discussions: Finance Minister Enoch Godongwana mentioned ongoing discussions for a revised budget.
• Economic Forecast: Economists anticipated a wider budget deficit and higher stabilization of public debt, now further complicated by this delay.

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