Dramatic Turn in South Africa’s Budget Battle: What it Means for the Economy

The national budget process is a continuous cycle that runs from April to March every year. This process is crucial to good governance because it ensures that government spending remains aligned with South Africa’s policy goals and objectives. It is one of the most critical functions of Parliament. The South African budget approval process is accompanied by an extensive public consultation process, required by the Constitution and Money Bills Act. While the Minister of Finance asks for public input prior to the budget speech, there is only so much scope for him to accommodate suggestions. Given how technical the budget is, the National Treasury has to focus its drafting efforts on engaging with national, provincial, and local government. The parliamentary process therefore ensures that the public gets the opportunity to make inputs into the final decisions.

The SA authorities indicated that the 2025 budget lays the foundation for faster economic growth and continues to stabilise the public finances. South Africa’s economic outlook is slowly improving, with GDP growth expected to average 1.8 percent over the next three years. Next year, debt will stabilise at 76.2 percent of GDP. Debt-service costs, which consume 22 cents of every rand of revenue, stabilise in the current year. In light of new and persistent spending pressures, the government has decided to raise additional tax revenues, including proposed value-added tax (VAT) rate increases of half a percentage point in each of the next two years. Investing in strategic infrastructure, supporting job creation, and maintaining a growth-friendly fiscal policy will underpin government policy over the medium term.

The Struggles and Strategies SA’s Coalition Government

South Africa’s Finance Minister Enoch Godongwana delivered the country’s 2025 Budget Speech on March 12, and strong reactions followed the minister’s announcement of the 0.5% increase to Value Added Tax (VAT) for the current financial year. While the Trump administration has now imposed tariffs of 30% on all South African imports, in a move that is likely to be a huge blow to its already floundering economy. The South Africa’s coalition government was formed after the African National Congress lost its majority last year for the first time since the end of apartheid in 1994. The budget negotiations have exposed fissures within the coalition between the left-leaning ANC and the center-right DA, its longtime rival. The second biggest party in the coalition, the Democratic Alliance, which opposes tax hikes, is calling for a complete revision of government spending. The African National Congress (ANC), the Patriotic Alliance (PA), and the Inkatha Freedom Party (IFP) are the main parties in favour of the budget, with around 196 votes. This means that to pass the budget, the ANC needs to secure at least five additional votes.

The government’s broad structural reform plans have identified increasing the performance of the country’s logistics infrastructure by attracting private sector equity partners, as well as through the devolution of the political oversight of the Cape Town port from the national to the Western Cape province, which the Democratic Alliance (DA) controls. Experts say SA’s economic future hangs in the balance — VAT hikes, modest growth projections, and a precarious parliamentary vote. What does this mean for the country’s financial destiny? Meanwhile, Finance Minister Enoch Godongwana raised doubts about the DA’s ability to remain in the government. “I don’t think you can vote against a budget, and tomorrow you want to grow and be part of its implementation. It can’t be,” Godongwana said. Helen Zille, chairperson of the DA’s federal council, said the party was seeking an interdict to stop South Africa’s tax service from implementing the 0.5% increase to VAT on May 1. “This interdict request is based on our legal challenge to suspend the finance minister’s announcement of the VAT hike and overturning Parliament’s adoption of the Fiscal Framework,” she said.

What Lies Ahead for South Africa’s Economy?

However, Professor William Gumede, an academic at Wits University’s School of Governance in Johannesburg, told the BBC it was unclear whether the DA would quit the government at this stage. “It will be asking itself whether this is the tipping point or whether it should wait – at least until the outcome of the court case,” Prof. Gumede said. An observer says privatizing aspects of the public rail infrastructure is one of the government’s plans to improve the economy’s performance. Most of the infrastructure is owned by state rail and ports company Transnet, which is facing a debt cliff. Therefore, the government needs to recapitalize it as a shareholder or strategic equity partner. But for many South Africans, the tariffs signal the need for the two biggest parties to resolve their differences and work together – or risk seeing the nation sink into a deeper economic crisis at a time when the unemployment rate is already at more than 30%.