THE BUDGET THAT NEVER WAS
Bureau for Economic Research (BER)
Independent, objective and authoritative economic research and forecasting
This is an extract from the Weekly Review of 21 February 2025. The full Weekly can be found here (for free, but sign up if you want to receive notifications of new editions and other BER publications)
The Week In Perspective Lisette IJssel de Schepper with Claire Bisseker
SA Budget week was always going to be eventful, but the happenings on Wednesday were unprecedented. At the very last moment, with virtually all ministers and other delegates already waiting in the Nieuwmeester Dome for the Finance Minister to speak, it was announced that the Budget speech would be postponed to 12 March. Soon, it became clear that a two percentage point (%pt) VAT hike proposal was at the crux of contention among GNU partners, and the decision was made to postpone the Budget rather than table it and risk it not passing.
As we indicated on Wednesday, there are no immediate risks from an economic perspective. Section 29 of the Public Finance Management Act gives some time for a new Budget to be tabled and allows spending to continue until a budget is passed. The initial uncertainty about what caused the 11th-hour delay and what it would mean for the way forward led to a depreciation of the rand exchange rate, while bond yields ticked up. Both have recovered since, with the rand actually trading stronger than pre-budget levels by yesterday afternoon. The 10-year government bond yield was still somewhat higher by Thursday close relative to last week.
It will be a daunting task to put together a ‘new’ Budget by 12 March, especially one that would appease all GNU partners – but it makes sense that their input should be considered. Indeed, the postponement in itself is seen by many (including the GNU parties) as a sign that the GNU is working. Still, it is unfortunate that this conflict only escalated at the very last moment, given the mammoth task of preparing a Budget. Hopefully, this is a wake-up call that a coalition government requires processes to involve all partners in decision-making. The National Treasury has lifted the embargo on the content of the Budget that would have been presented on 19 February but will not engage further on it, for now.
BUDGET 2025: FISCAL CONSOLIDATION THROUGH TAX INCREASES RATHER THAN EXPENDITURE CUTS
The National Treasury pulled out the big bazooka of a 2%pt increase in the VAT rate to keep its debt stabilisation plan largely on course. However, while the Budget showed that this means the debt ratio will still stabilise this year (though slightly higher than before) and more funds will be shifted towards infrastructure investment and protecting frontline services and the poor, it will come at a significant cost to the taxpayer.
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Editor: Lisette IJssel de Schepper Email: [email protected]
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