In South Africa’s coalition government, internal disagreements have led to significant challenges in passing the national budget. The crux of the dispute centers around a proposed increase in the Value-Added Tax (VAT), a measure that has exposed deep divisions within the Government of National Unity (GNU).
Finance Minister Enoch Godongwana initially proposed raising the VAT rate from 15% to 17% to bolster government revenues. However, this proposal faced staunch opposition from the Democratic Alliance (DA), the second-largest party in the coalition. The DA argued that such an increase would disproportionately affect the economically vulnerable, exacerbating existing socio-economic challenges. This disagreement led to the unprecedented postponement of the budget speech, highlighting the fragility of the coalition’s unity.
In an attempt to resolve the impasse, the National Treasury revised the VAT increase proposal, suggesting a more gradual approach. The new plan outlined a 0.5 percentage point increase from the current 15% in May 2025, followed by another 0.5 percentage point rise in 2026. Despite this concession, the DA remained opposed, maintaining that any VAT hike would be detrimental to the economy and the populace.
The budgetary deadlock has had tangible economic repercussions. The South African rand experienced a 0.3% decline, trading at 18.57 against the dollar. This depreciation was attributed to political uncertainties surrounding the budget and external factors like anticipated U.S. tariff policies. Financial markets reacted with caution, reflecting concerns over the government’s fiscal direction and stability.
In response to the ongoing stalemate, the African National Congress (ANC) considered seeking support from the Economic Freedom Fighters (EFF) to secure the budget’s passage. This move underscored the complexities of coalition politics, where ideological adversaries might align temporarily to achieve legislative objectives. However, such a strategy risked alienating existing coalition partners and further fragmenting the political landscape.
Analysts warn that the budgetary impasse could have broader implications for South Africa’s political and economic stability. Prolonged uncertainty may erode investor confidence, hinder economic growth, and strain public services that rely on government funding. The situation calls for adept political maneuvering and consensus-building to navigate the coalition’s divergent interests and ensure the country’s fiscal health.
