An expert says the voting for the budget could not have come at a worse time, falling on the same day as the announcement of Trump’s tariffs.
On Wednesday, parliament approved the Fiscal Framework and Revenue Proposal, the foundation of Budget 2025, but the vote was far from smooth. The drama around passing the budget shook South Africa’s fiscal stability and investor confidence and put the government of national unity (GNU) on thin ice.
In a dramatic twist, the ANC’s key partner in the GNU, the DA, rejected the proposal because the party opposes the 0.5% VAT increase it contains.
“With the ANC seeking support beyond the GNU, cracks in the coalition are widening. As for the budget itself, it does little to shift our broader macroeconomic outlook for the country,” Jervin Naidoo, political analyst for South Africa at Oxford Economics Africa, says.
The sitting of Parliament was filled with drama as MPs from the DA, EFF and MK party objected to the previous day’s approval of the Fiscal Framework and Revenue Proposal report by the Standing Committee on Finance.
They argued that procedures were not followed in approving the various money and revenue bills that make up the backbone of the budget. According to the DA, EFF and MK party, this report must either be accepted or amended, not conditionally accepted.
They also accused the ANC and ActionSA of bending the rules by approving a non-binding agreement. ActionSA supported the budget on condition that Treasury reviews the VAT increase within 30 days and explores alternative funding.
ALSO READ: 2025 budget: ActionSA defends its stance as DA seeks to interdict VAT hike
Parties shouting and heading to court over budget
Naidoo points out that National Assembly Speaker Thoko Didiza remained composed, repeatedly insisting that procedures were followed, but the EFF said it will challenge the proposal in court.
Technical difficulties added to the chaos, with persistent sound problems plaguing the session, mainly affecting MPs from the MK party and EFF, who struggled to hear. One EFF member even quipped that they cannot hear the ‘unlawful bill’.
After these disruptions, Standing Committee on Finance chairperson Joe Maswanganyi presented the report. He affirmed it was accepted by committee members and urged MPs to put aside party politics and vote for it.
When political leaders took the floor, the DA, EFF and MK party opposed it, while the ANC, IFP, ActionSA, Bosa and Rise Mzansi backed the budget. ActionSA, Bosa and Rise Mzansi stated that their support was conditional and they were only voting for the budget to prevent economic collapse.
They stressed that Treasury must find an alternative solution to the VAT hike within 30 days although Treasury’s commitment to finding alternative revenue is non-binding. Before voting started, Finance Minister Enoch Godongwana closed the debate with a fiery speech reaffirming the need for the VAT increases.
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He pointed out that 76% of VAT is paid by people in the top three income categories, according to Treasury’s data.
Another unusual scene had members of the DA aligning with the hard-left EFF and MK party shouting together that a PA MP entered the chamber after the doors were supposed to be locked.
Budget voted in by majority of 12
Of those present, none abstained, while 182 voted against and 194 in favour of the fiscal framework. During voting it became clear that 24 MPs were absent. The National Assembly therefore adopted Godongwana’s report and framework thanks to the small liberal parties.
Naidoo says by backing Budget 2025, these outfits not only embarrassed the DA but illustrated how a hung parliament allows smaller parties to influence major decisions.
“The unprecedented budget impasse has shaken confidence in South Africa’s fiscal stability and put the GNU coalition on thin ice. Growing pains were to be expected, but the way things have played out with Budget 2025 erodes the policy predictability many expected under the GNU.
“The wrangling with Budget 2025 over the past few days does not alter our view of South Africa’s tarnished fiscal outlook. Treasury’s consolidation efforts and revenue targets in the near term are likely to be undermined by the suspended VAT hike and the implementation of income tax bracket adjustments,” Naidoo says.
ALSO READ: National Assembly passes budget after heated debate
He also says it is unclear where Treasury will find alternative revenue sources within 30 days, as this is non-binding and how sustainable those will be. “If increased borrowing is not part of new funding sources over the Medium-Term Expenditure Framework (MTEF) period, rating agencies and investors should not be too concerned.
“However, considering the mounting uncertainties about the GNU’s future and South Africa’s deteriorating fiscal outlook, negative rating actions down the line are becoming more likely. The uncertainty, due to political idiosyncrasies in the current global context, will amplify volatility in domestic assets over the near term.”
Political flip-flopping about tax proposals
In addition, political flip-flopping about tax proposals has created confusion, which sends the wrong message to foreign investors, Naidoo says. “The latest budget proposals do not address fundamental fiscal issues and South Africa will most likely face a similar budget predicament next year.
“There would also be serious concerns among South Africans if 30 days pass without Treasury implementing measures to counter the VAT increase.”
ALSO READ: MPs disagree on VAT increase, question Treasury’s ability to perform ‘miracle’
Politically, this is a minefield, he says. “The DA’s decision not to back Budget 2025 does not mean the GNU is dead, but it does highlight the fragility of the coalition. No one expected smooth sailing, especially since there is no formal coalition agreement, just a statement of intent among GNU partners.
“In that context, the ANC looking elsewhere for support is not necessarily a crisis but it does set a dangerous precedent, as the ANC can now keep looking to parties outside the GNU to help pass legislation, which will weaken any leverage the DA thought it had.”
Timing could not have been worse
Izak Odendaal, chief investment strategist at Old Mutual Wealth, says the timing could not have been worse to vote for the budget. “It remains to be seen what the finance minister tables in parliament after the ‘recommendations’ of the finance committee were adopted by the National Assembly.
“The key aspect is that there is no further borrowing. We must stabilise debt ratios as promised in the original budget. The whole process has been chaotic and creates unwelcome uncertainty for investors.”
He says the risk of the DA pulling out of the GNU is material, although the disagreement over the budget was relatively small and in the end none of the parties wanted a VAT increase. “If the DA left the GNU, it would be a further blow to investor sentiment in South Africa, but it is worth remembering that domestic asset classes already carry a sizable risk premium precisely due to these political concerns.
“The next question would be whether the DA is replaced by another coalition partner and if so, who that will be? Otherwise, the GNU will only have 50% of the votes in the National Assembly, not enough to pass legislation, but also not enough to lose a vote of no confidence.”
ALSO READ: Budget 2025: Budget vote crucial test for GNU, will not change fiscal position
GNU partners commitment to fiscal consolidation and debt sustainability
Sanisha Packirisamy, chief economist at Momentum Investments, says while a commitment from all GNU partners to fiscal consolidation and debt sustainability bodes well, the uncertainty linked to the budget outcomes has had a negative effect.
“There is a rising risk of the DA leaving the GNU which would be market negative. Overall, we do think that a number of reforms under Operation Vulindlela would not be derailed, still contributing to growth outcomes in the medium term.
“However, the increase in uncertainty would be negative for sentiment and have a knock-on impact on spending and investment, which could drag growth lower in the near term and create an inflationary impulse via a weaker currency.”
