Welcome to the podcast, where we delve into the ongoing deadlock in South Africa’s national budget negotiations between the ANC and the DA, key partners in the Government of National Unity. This crucial standoff, stemming from disagreements over fiscal policy and economic direction, carries significant implications for the stability of the GNU, the future of the budget, and the overall economic landscape of the country.
Here are the key takeaways:
- Budget Negotiations Deadlock: Negotiations between the ANC and DA regarding the national budget ended without an agreement despite extending into the early hours of Tuesday, April 1, 2025. This deadlock persists due to long-standing disagreements between the Government of National Unity (GNU) partners.
- Fiscal Framework Importance: The budget negotiations precede a crucial joint meeting of Parliament’s finance committees scheduled to discuss the fiscal framework. This framework is significant as it establishes economic policy, revenue projections, and overall limits on government spending. The report on this framework must be adopted within 16 days after the Finance Minister tabled the budget on March 12th.
- Key Points of Contention: A major point of disagreement between the ANC and DA is the proposed 0.5 percentage point VAT increase. The DA is also demanding a stronger role in economic policy and has put forward proposals such as scrapping import tariffs, accelerating port reforms, and ending the ANC’s localisation policy. Another sticking point is the DA’s request to have Deputy Finance Minister Ashor Sarupen appointed as co-chairperson of Operation Vulindlela.
- DA’s Stance and Actions: Following the unsuccessful negotiations, the DA scrapped a planned media briefing. Instead, the DA’s finance spokesperson, Dr Mark Burke, stated that the ANC had failed to agree to necessary economic reforms. Consequently, the DA will argue for budget amendments in the parliamentary committee, focusing on increasing revenue without raising taxes, specifically opposing the VAT increase. Dr. Burke has been mandated to amend the fiscal framework accordingly.
- ANC’s Confidence and Strategy: Despite the lack of agreement with the DA, the ANC remains confident that the budget will pass. ANC Secretary-General Fikile Mbalula warned of implications for the GNU if partners do not vote in favor of the budget. The ANC is now looking to smaller parties like ActionSA for support in the National Assembly vote. Mbalula attributed the failure to reach an agreement with the DA to the party’s numerous demands and alleged leaking of talks, claiming their proposals were unrelated to the presented budget.
- ActionSA’s Position and Potential Support: ActionSA has engaged with the ANC and has narrowed its demands to opposing VAT and income tax increases. In exchange for ANC concessions, ActionSA might offer its support for the budget in the National Assembly. ActionSA’s Alan Beesley tabled an amendment reflecting this position, which received support from some ANC MPs.
- Other Parties’ Views: The EFF has stated it would consider serious negotiations with the ANC on the GNU if the DA and Freedom Front Plus were removed. The MK party also opposes the VAT increase and has proposed alternative revenue generation methods, such as increasing corporate tax and improving SARS revenue collection.
- GNU Instability: The inability to agree on the budget highlights significant divisions within the 10-party GNU, which is already divided over other legislation. Failure to pass the budget could have negative impacts on the markets and potentially lead to a collapse or reconfiguration of the GNU.
- Budget Approval Deadline and Consequences of Failure: The National Assembly is scheduled to vote on the budget on Wednesday, April 2nd. If the budget is not passed by April 1st, the government can continue spending up to 45% of the previous year’s budget but cannot implement new allocations without parliamentary approval.
- Rand Volatility: The dispute over the budget between the ANC and DA has caused investor anxiety, leading to a surge in rand volatility. Concerns exist that a collapse of the current administration could lead the ANC to seek support from leftist parties, which is viewed negatively by investors.
- SARS Performance: The South African Revenue Service (Sars) collected a record gross revenue in the 2024/25 fiscal year, exceeding expectations. This performance occurs as the 2025 Budget, to be voted on, allocates additional funds to SARS to enhance debt collection and combat illicit trade.
- Manufacturing Sector: A purchasing managers’ index (PMI) survey indicates that conditions in the manufacturing sector remained depressed in March, although sentiment showed a slight improvement due to better demand. However, factors like power cuts and strained US-South Africa relations are likely dampening the mood.
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