Budget 2025 take three: another shambolic setback

The 2025 South African Budget process, already a saga of delays and disputes, is again in crisis. With the Western Cape High Court over the long weekend setting aside the fiscal framework, narrowly passed by Parliament but opposed by key Government of National Unity (GNU) partners the Democratic Alliance (DA) and the Freedom Front Plus (FF+), National Treasury has to go back to the drawing board for an unprecedented third attempt at crafting a national Budget. The new Budget will be tabled on 21 May.

Once a beacon of fiscal competence, South Africa’s National Treasury has stumbled under the GNU, tarnishing its global reputation and plunging local businesses and consumers into uncertainty. As the GNU limps along, the Budget chaos threatens not just South Africa’s attractiveness for investors but the socio-economic compact that holds the nation together.

South Africa’s growing fiscal black hole

Without the VAT (value-added tax) increases, Treasury estimates that the Budget faces a R75 billion shortfall over the medium term. However, this figure is based on outdated and overly optimistic assumptions. Though Treasury forecast gross domestic product (GDP) growth of 1.9% for 2025, the International Monetary Fund has since downgraded its projection to just 1%, citing both global trade tensions and rising domestic instability. The implications are serious: this downgrade may blow a bigger hole in the Budget than the scrapped VAT hike itself.

Painful spending cuts are now unavoidable

South Africa finds itself in a fiscal straitjacket, with debt servicing costs already consuming 22 cents of every rand of tax revenue. Over the past two decades, Treasury has failed to heed the wisdom of Joseph – history’s first Jewish finance minister, who counselled Pharaoh to save in seven fat years for the seven lean ones – what economists today call countercyclical fiscal policies. Instead, South Africa’s government spending has risen sharply, from about 22% of GDP in the early 2000s to more than 32% today, outpacing emerging market peers like India, Mexico, and Indonesia.

The bill for this profligacy has come due. Now, facing the potential loss of AGOA (the African Growth and Opportunity Act) and a global economic slowdown – the lean years – we have no fiscal space to support our economy. The required cuts will be painful and are sure to be resisted by entrenched interests in the public sector and within the African National Congress (ANC).

The GNU under maximum pressure

The reversal of the VAT hike is more than a policy retreat, it was a public admission that the GNU lacks both cohesion and control. Treasury’s most substantial revenue measure was undone not by Parliament, but by the courts, exposing deep fractures in the GNU and raising fundamental questions about how decisions are made.

The GNU now faces its gravest test. As one party insider put it to me, it resembles “an unhappy marriage between the DA and ANC, but one that both parties still want to keep together for the sake of the children.”

Given the balance of forces inside and outside the ANC, the GNU looks likely to limp on. The ANC, long accustomed to dictating policy, has received a bruising lesson in coalition politics: compromise is non-negotiable. The DA’s court victory against the VAT hike forced an ANC retreat. Yet the DA’s inability to build a broader reform coalition in Parliament with smaller parties like ActionSA, Build One South Africa, and Rise Mzansi, thwarted by egos and infighting, has also deepened the chaos.

Seeking another De Klerk-Mandela moment

This week, as we mark 31 years since our transition to democracy, South Africa faces another defining moment in its history. A paralysed, zombie-like GNU whose sole purpose is to keep out the so-called doomsday coalition isn’t a sustainable model for governance.

Given worsening global turmoil, with United States President Donald Trump’s trade wars returning and domestic malaise deepening, survival politics is no longer enough.

South Africa needs leadership. It needs another De Klerk-Mandela moment: a national effort to put aside ego and self-interest and deliver real structural reforms – from Eskom unbundling, to cutting wasteful expenditure, to removing the red tape that chokes investment.

Only through unity of purpose can we restore investor confidence, rebuild public trust, and fix our economy to deliver growth, create jobs, and provide hope.

• Michael Kransdorff is chief executive of the Institute for International Tax and Finance and a Harvard trained economist. Visit www.intltax.org