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South Africa’s Budget Speech 2025 Cancelled – What It Means for the Economy
For the first time in South Africa’s democratic history, the national Budget Speech was cancelled. Finance Minister Enoch Godongwana was set to present the 2025 Budget Speech on 19 February 2025, but last-minute disputes within the Government of National Unity (GNU) forced a postponement. The primary issue? A controversial proposal to increase VAT by 2%.
Political Turmoil Behind the Postponement
The decision to delay the budget reflects deep divisions within the GNU. Several cabinet ministers opposed the VAT increase, leading to a dramatic standoff.
Democratic Alliance (DA) leader John Steenhuisen called the postponement a win for South Africans, arguing that increased taxation is not the answer to the country’s economic challenges. Instead, he pushed for a new budget focused on economic growth rather than higher taxes and debt.
Patriotic Alliance leader and Minister of Sport Gayton McKenzie confirmed that most cabinet members were against the budget in its current form. He emphasized that discussions were held beyond party lines, with Finance Minister Godongwana ultimately taking note of the concerns raised.
Godongwana acknowledged the need for a balanced budget that supports both economic growth and financial sustainability. Despite the setback, he assured that the budget would be presented before the start of the new financial year, as required by law.
Economic Consequences and Market Reaction
The sudden cancellation sent shockwaves through financial markets. The South African rand weakened significantly, and economists scrambled to reassess their forecasts.
Peter Attard Montalto, managing director at Krutham, described the situation as “complete madness,” but maintained that the path to higher primary surpluses remains intact. He criticized the ANC-led government for failing to anticipate opposition to the VAT hike, calling it a governance failure that exposed internal ANC and cabinet weaknesses.
The R60 Billion Fiscal Hole
The now-scrapped VAT increase was projected to generate an additional R60 billion in revenue annually. Without it, the government faces a major fiscal shortfall. Experts suggest that alternative tax measures, such as lifting the fuel levy freeze and raising excise duties on alcohol and tobacco, could help. However, these would only generate an estimated R8 billion—far short of what is needed.
Some analysts believe spending cuts will be the only viable solution, with potential reductions in infrastructure spending and provincial budgets. However, these measures come with their own risks, including slower economic growth and increased financial strain at local government levels.
What Happens Next?
The National Treasury has rescheduled the Budget Speech for 12 March 2025. However, officials have remained tight-lipped about any potential changes to the budget plan.
Attard Montalto sees this as a critical moment for the GNU. If the ANC takes the DA’s red lines seriously, the coalition could become more stable. Meanwhile, Godongwana’s position as Finance Minister appears secure for now, with President Cyril Ramaphosa reportedly unwilling to accept his resignation.
With just weeks left before the new financial year, all eyes are on how the government will bridge the massive budget gap. Will new tax measures be introduced? Will spending cuts be severe? One thing is certain—South Africa’s fiscal future hangs in the balance.
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