Healthy democracy or cause for concern?

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The last-minute cancellation of the highly anticipated Budget Speech has sparked mixed reactions from financial experts. Some see it as a sign of healthy democratic engagement, while others view it as a concerning lack of prior consensus.

BUDGET SPEECH DELAY SHOWS POLITICAL DYNAMICS AT PLAY

Speaking to The South AfricanLance Collop, chartered accountant and founder of Collop Tax Collective, said that there were both positive and negative aspects of the postponement. He pointed out that the delay indicates the Government of National Unity (GNU) is committed to reaching consensus rather than being dominated by a single party.

However, he also raised concerns about the timing, as the issue of a proposed 2 percentage point VAT increase seemed to emerge only on the day of the Budget Speech.

“All that we know for sure at this point is that we have a major budget deficit to fill, and an increase in VAT is the most efficient and effective way to increase tax collections almost instantly,” Collop said.

He also noted that any VAT adjustment presents businesses with logistical challenges, making incremental increases over a two-to-three-year period far from ideal.

MARKET UNCERTAINTY AND ECONOMIC IMPACT

Also speaking to The South African, Frank Blackmore, lead economist at KPMG, said that the uncertainty caused by the sudden cancellationwas concerning. He noted that last year, most market analysts did not expect a VAT increase in this budget. However, recent speculation suggested that a 2 percentage point hike was under consideration.

“From this morning, ‘2 percentage points’ was starting to go around the market to most people’s disbelief, mostly due to the impact it would have on the poor majority of the country,” Blackmore said. He explained that a VAT increase would not only be inflationary but also reduce disposable income, severly affecting lower-income individuals.

Blackmore also pointed to the negative reaction from financial markets, stating that investors expect a clear and strategic economic plan from the GNU. “One would have thought that even the Government of National Unity, with its constituent parties, would have had a strategic plan for the economy over the next three years—debated and finalised before this budget event took place. That was obviously not the case,” he said.

WHAT’S NEXT FOR SOUTH AFRICA’S ECONOMY?

With the Budget Speech now expected in March, Blackmore remains cautiously optimistic. “I don’t think it’s the end of the world if the right outcome is reached. If all parties are satisfied with the new budget, the country will be better for it. But it would have been good to avoid this incident altogether.”