• DISPATCHES
• SOUTH AFRICA

Treasury is the big loser after the tax hike fiasco

The ANC and the DA are both battered by the budget delay but more fights over spending are likely

The latest compromise on rates for value added tax in the much-delayed budget has kept the Government of National Unity in power – but at the expense of South Africa’s revered Treasury. For many decades, the Treasury, with the backing of the ruling party has set the fiscal framework for the budget and its spending priorities.

Then last month, the coalition structure of the GNU forced the Treasury, led by Finance Minister and African National Congress loyalist Enoch Godongwana, to drop a key plank of its fiscal plan – raising the rate of VAT to 17% from 15% (Dispatches, 17/3/25, Budget bargaining rumbles after finance minister tables revised tax plan in parliament).  That forced a rare delay to the reading of the budget in parliament and triggered a feud between the ANC and the centre-right DA, the second biggest party in the coalition. 

To some investors that signals the diminishing of the Treasury and a growing partisanship fiscal policy. It has also left Godongwana and the Treasury with a 75 billion rand (US$4bn) to fill over the next three years. The final decisions on how to do that will be taken by parliament before the end of July.

Neither the ANC nor the DA can claim a clear win. The budget fight has exposed splits in the ranks of both parties. Supporters of ANC Deputy President Paul Mashatile have been emboldened in their opposition to the DA’s inclusion in the coalition; and critics, such as Helen Zille, of John Steenhuisen’s leadership of the DA lamented that he didn’t capitalise more on the ANC’s discomfiture over the budget.

The DA takes the credit for getting the Treasury to drop the increase in VAT. But it may also get the blame for the consequences of not raising the rate. Explaining the fiscal hole facing the government, a Treasury official added that the ‘decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited,’ and that this will mean ‘unavoidable expenditure adjustments’.

That is code for cuts and finance ministry officials concede that cuts are the only realistic outcome. But many in the ANC resent the DA’s tough tactics and are likely to blame it for new spending cuts, further straining the coalition. Parties in the GNU are now planning a shorter-term compromise to find savings of R13bn (US$0.7bn), the amount that would be raised by the 0.5% VAT increase.

The dispute has highlighted the powerful role played by Mmusi Maimane, the former DA leader who now chairs the National Assembly’s Appropriations Committee, which has sweeping powers over government spending.

The DA’s Steenhuisen believes he secured enough concessions from the Treasury to put a positive spin on the negotiations on 25 April. He told journalist that he had no intention of walking away from the coalition. And he added that is what the markets wanted. 

President Cyril Ramaphosa also won a boost from keeping the fractious coalition together on 25 and was able to tell South Africans about a planned meeting with United States President Donald Trump to resolve the rumbling diplomatic differences between the two countries. And South Africa’s Standard Bank reports an uptick in private investment in the country since the GNU was launched last year with Gulf States boosting their investments in South Africa’s renewable sector.

None of that is enough for Deputy President Mashatile, now in full 2027 ANC leadership election mode. He has grown increasingly vocal in recent weeks (AC Vol 66 No 8, The budget fight threatening to shatter the coalition), arguing the DA should be ‘ashamed’ to be in office after voting against the budget.

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