The postponement of South Africa’s 2025 budget until 12 March comes at a difficult time when the country faces mounting fiscal pressures, sluggish economic growth, and decaying service provision.  

The immediate market reaction has been negative, if not muted. The Rand depreciated against the US dollar and government bond yields have also edged higher, signalling increased risk perceptions among foreign and domestic investors.  

The postponement, however, also reflects the realities of coalition government, and that the ANC has yet to come to terms with the reality that it can no longer just bully its way forward. The rejection by the other parties in the GNU to the proposed 2% in VAT is evidently the primary stumbling block and there will now have to be intensive negotiations between these parties to ensure sufficient consensus ahead of the tabling of the revised budget on 12 March. In many respects this is a positive sign of democratic maturity. 

As these discussions unfold, close attention needs to be paid to how the parties agree to confront the sober reality – South Africa has run out of fiscal room for manoeuvre. Any slippage in the country’s debt-to-GDP ratio, through higher deficits or excessive borrowing could lead to a downgrade from ratings agencies. This in turn would limit foreign investment, drive up borrowing costs, weaken the rand and increase inflation.  

To escape this economic doom spiral the GNU needs to enact real reform. Currently, the vast bulk of the budget is spent on personnel, social grants and debt servicing, costs which are crowding out spending on capital projects and service provision. This means that in the absence of increased borrowing or increased taxes (be it VAT or other taxes), government will have to cut the size of a bloated and inefficient state (at all levels), reduce endemic corruption, reform labour legislation, expand public private partnerships, abandon unaffordable programmes such as the NHI and ruthlessly prioritise economic growth supporting investment. This would place South Africa on a growth path above the current projection of an anaemic 1% and would allow for greater fiscal breathing room. 

The stakes for South Africa could not be higher; at a time of heightened global instability and increased scrutiny of the country’s governance any further delay in passing the budget would be catastrophic. The South African tendency of just muddling through will therefore no longer suffice. On March 12 we will know if the GNU is capable of putting us on a path of reform that will lead to shared prosperity. The alternative of trying to tax us into prosperity is a prospect too ghastly to contemplate.