Finance Minister Enoch Godongwana. (Photo: Brenton Geach / Gallo Images) 
When Finance Minister Enoch Godongwana delivers the 2025/2026 Budget on Wednesday, 12 March, he does so in the shadow of an unprecedented postponement and deep political fractures in the Government of National Unity (GNU).
What should have been a straightforward presentation three weeks ago descended into chaos after the Cabinet baulked at the Treasury’s proposed two percentage point increase in Value Added Tax (VAT) — a move that threw Parliament into turmoil and sent shockwaves through the markets, having blindsided partners in the GNU.
The delay was the first of its kind in democratic South Africa and exposed the fragile unity of a government that must now find common ground to deliver a credible Budget. With just weeks to reconcile the internal rifts, Godongwana’s task is not merely presenting a fiscally responsible plan but reassuring South Africans and global investors that the GNU remains functional despite internal divisions.
At the heart of the much-anticipated Budget Speech lies the contentious issue of the VAT hike. The Treasury had positioned the VAT increase — from 15% to 17% — as critical for generating about R58-billion in desperately needed revenue. The government’s rationale was clear: raising VAT is more efficient and unavoidable than increasing personal income tax, where high-income earners could change spending habits to dodge higher taxes.
Political realities quickly overshadowed economic arguments, with coalition partners, including the Democratic Alliance (DA), Inkatha Freedom Party (IFP) and Rise Mzansi blindsided by the scale of the proposed increase.
Sources within the DA confirmed to Daily Maverick that the coalition partners had initially agreed to discuss a more palatable 1% hike, but the Treasury’s last-minute revelation of the 2% figure led to accusations of backtracking and betrayal.
As Parliament reconvenes on Wednesday, Godongwana faces a dilemma. If he insists on the full VAT increase as per two weeks ago, he risks another revolt from coalition partners, potentially deepening rifts within the GNU and undermining his political credibility — a circumstance which is extremely unlikely given the previous postponement.
Perils
However, abandoning any increase leaves a substantial fiscal gap that the Treasury must fill elsewhere — either through significant spending cuts, other tax increases or increased borrowing. Each option carries political and economic perils.
Alternative revenue-raising strategies have already sparked heated debate. Income tax increases on higher earners or corporations are unpopular and politically sensitive, especially given South Africa’s already high tax-to-GDP ratio. According to the South African Revenue Services Tax Statistics 2024, the tax-to-GDP ratio was 24.5% in the 2023/24 financial year. This is relatively high compared to, for example, Brazil, which had a ratio of 16.7% in the same period.
Meanwhile, excise taxes on alcohol and tobacco — perennial easy targets — may only provide limited additional funds.
The Treasury might again push for enhanced efficiency and tighter compliance to close tax leakages, but this approach demands tangible improvements from the South African Revenue Service, which continues to battle institutional weaknesses.
On the expenditure front, government priorities are clear but politically fraught. Public sector wages, a major factor behind the VAT proposal, remain contentious amid pressure from unions demanding above-inflation wage increases. The Treasury’s February presentation emphasised spending increases for social grants and critical infrastructure, areas viewed as non-negotiable due to widespread public hardship and economic stagnation.
However, any significant spending hikes will now require compensatory Budget cuts elsewhere, or borrowing — which would undermine the government’s stated commitment to reducing the debt burden.
Debt levels remain alarmingly high, forecast to stabilise at around 76.1% of GDP. Market analysts warn that deviating from fiscal discipline at this juncture could severely erode investor confidence, undoing recent incremental gains in international credibility.
Political unity — or the lack thereof — could also define the Budget Speech. The fragile GNU, formed after the ANC’s electoral losses in 2024, is under severe strain. The DA, emboldened by February’s postponement, has publicly taken credit for blocking the VAT hike, characterising it as a victory for ordinary South Africans.
Meanwhile, the EFF has seized on the chaos, branding it a symbol of governmental collapse and disarray. Party leader Julius Malema described the postponement as evidence that the government “has collapsed”, rhetoric that has intensified scrutiny of the coalition’s stability.
Inside the Treasury, officials are walking a fine line. Director-General Duncan Pieterse has remained notably diplomatic, carefully sidestepping the political fracas.
Markets, meanwhile, are watching closely. The rand weakened sharply following the postponement, underscoring how fragile investor confidence is. Analysts have signalled clearly that markets will tolerate neither fiscal irresponsibility nor continued political dysfunction.
Investors seek clarity above all: a cohesive, credible fiscal strategy could stabilise sentiment, but another breakdown could drive investors toward the exits. With coalition partners and the country on edge, and economic growth elusive, South Africa needs clarity and stability now more than ever.
The geopolitical backdrop
The geopolitical and global economic backdrop to the Budget has in the space of just three weeks deteriorated since it was initially supposed to be tabled.
US markets and their global peers melted down on Monday on mounting fears that President Donald Trump’s helter-skelter tariff policies could trigger a recession in the world’s largest economy while reigniting inflation.
A US recession would unleash shockwaves across the world and South Africa’s open and fragile economy — already caught in a low-growth trap — would be shaken badly by such a scenario.
Data unveiled last week by Stats SA showed South Africa’s economy in 2024 grew by only 0.6% from 2023, 0.2 percentage points lower than the 0.8% estimate in the Budget that was not tabled on 19 February.
With the global economy bracing for the turbulence of Trump’s ham-fisted tariffs and trade wars, estimates for world economic growth for 2025 are being slashed, and the Treasury’s 1.9% growth projection on 19 February now looks optimistic.
This will all have grave consequences for a government facing a fiscal cliff of swelling debt, which has shown — at least on the ANC side — no political will to make the necessary cuts now. There may be some political gain to this strategy, but it will mean more long-term pain. DM