SA’s Borrowing Capacity Maxed Out as VAT Debate Delays Budget Speech

The ANC has warned that South Africa’s borrowing capacity has reached its limit, complicating the country’s budget planning as debate over a proposed VAT increase stalls the 2025/2026 budget speech.

Speaking at the Nieuwmeester Dome in Cape Town on Wednesday, ANC secretary-general Fikile Mbalula stressed the urgent need to address South Africa’s financial constraints without further borrowing. The postponement of the budget speech follows disagreements within the government of national unity (GNU) over a proposed 2% VAT increase.

Budget Deadlock: Borrowing, Cuts, or Taxes?

Finance Minister Enoch Godongwana acknowledged that the National Treasury faces tough choices: increase borrowing, introduce deeper spending cuts, or raise taxes. However, Mbalula made it clear that the ANC is hesitant to support a VAT hike.

“As the ANC, in terms of the proposal to increase VAT, we are not entirely in support of that, but there’s a mechanism to get us out of the challenge we are facing that our borrowing capacity has been exhausted,” he stated.

Mbalula emphasized that if VAT were considered, it should not impact zero-rated goods, which include essential food items. However, he noted that the debate is still ongoing, and alternatives must be explored to prevent further financial strain on citizens.

Treasury to Recalculate Budget Figures

The postponement of the budget means that the Treasury will now reassess its financial projections before presenting the revised budget speech on March 12. Mbalula defended the delay, stating that the finance minister’s engagement with stakeholders was necessary for finding the best path forward.

“Only between now and March can we reassess the numbers and find a sustainable way forward,” he explained.

Public Sector Retrenchments on the Table?

The financial crisis has also sparked concerns over potential public sector job cuts. When asked about this possibility, Mbalula acknowledged that the government faces multiple challenges in managing the budget cycle.

“The Treasury must take everybody into confidence. There’s a whole lot of challenges that are facing us in relation to this budget cycle,” he said.

US Policy Shifts and South Africa’s Economic Outlook

Mbalula also addressed recent global developments, including former US President Donald Trump’s executive order freezing most foreign development aid for 90 days. He dismissed concerns that this would have a direct impact on South Africa’s financial position.

“They found us here, and they gave us money, which we appreciated, and then we invested a lot in our own fiscus to address the scourge of HIV/Aids,” he said.

Regarding South Africa’s standing in the African Growth and Opportunity Act (AGOA), he assured that diplomatic efforts are ongoing to maintain trade relations with the US.

Ramaphosa Pledges a Balanced Budget

Despite the financial uncertainty, President Cyril Ramaphosa has reassured South Africans that the budget will prioritize both economic stability and social welfare.

“We are called upon as the national leadership to pursue all initiatives aimed at growth in order for us to increase employment and alleviate the effects of poverty,” Ramaphosa said.

He emphasized that Cabinet deliberations will ensure the budget protects vulnerable citizens while fostering investment and growth.

With the budget speech now set for March 12, all eyes will be on Treasury’s revised plan. Will the government opt for tax hikes, deeper spending cuts, or alternative financial solutions?

South Africans will be watching closely as the GNU navigates these tough fiscal choices in the coming weeks.

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