Proposals have been submitted and arguments put forward, and it is now up to the National Treasury to table a more palatable budget on March 12.
The 2025 budget was postponed on February 19 after the DA rejected finance minister Enoch Godongwana’s move to increase VAT by two percentage points — a historic moment, because the ANC for the first time had to reckon with the real-time implications of co-governing.
Still, the FM understands that a VAT increase is not off the table. A lower percentage is still among the basket of options being considered by the Treasury to balance the books. Another option is a potential pension contribution holiday — or reduction — from the state into the Government Employees Pension Fund. Cutting wastage as well as spending cuts are also possible.
Two special cabinet meetings were held, one last Monday and the second this week. Last week President Cyril Ramaphosa appointed a task team led by his deputy, Paul Mashatile, to work with the Treasury and provide options to the cabinet. A follow-up meeting was held on Monday, when the proposals were considered — it is necessary for the ANC and the DA to agree, as the ANC will need the DA to support the budget.
While government insiders and officials have been mum on the discussions, the official statement was telling — whatever measures are adopted must not have a negative impact on poor and middle-income households, and they have to support economic growth. The addition of middle-income households is a shift from initial discussions on a potential VAT increase, which centred on mitigating its impact on the poor.
The FM caught up with DA leader John Steenhuisen after the cabinet meeting on Monday and his view is simple — growth and jobs are critical; it is long past crunch time and there is no more time for endless discussions.
Steenhuisen believes it doesn’t really matter how Godongwana plugs the budget holes this time — what’s needed, soon, is a step change in the government’s approach to growth. GDP figures for 2024 released this week show that the economy grew by just 0.6% in 2024, down slightly from 0.7% in 2023 and below the Treasury’s expectations of 0.8% growth.
“If you don’t grow the economy, we’re going to be fighting in October for the adjustment budget,” says Steenhuisen. “We’ll be fighting in February next year again. We’ll be fighting again about which taxes you’re going to have to raise and what you’re going to have to cut, and that’s no way to run a country. The only way out of this mess is through economic growth and job creation. You can’t tax your way out of this crisis, and you can’t spend your way out.”
The cabinet was “kicking around” a number of ideas, including the pension holiday, says Steenhuisen, but all of them have downsides.
The only way out of this mess is through economic growth and job creation. You can’t tax your way out of this crisis, and you can’t spend your way out
— John Steenhuisen
The pension contribution holiday was proposed by Cosatu, the trade union federation that includes the largest public sector unions. It believes the holiday is a solid short-term measure that could give the government about R53bn if done for a year.
Cosatu parliamentary spokesperson Matthew Parks says that even a reduction in the contribution — as Nelson Mandela’s administration had done — could help. However, he warns that going this route would have to be short term and coupled with tangible conditions such as recapacitating the South African Revenue Service, filling vacant frontline posts in the public service and sticking to the above-inflation wage deal that the government recently signed with public servants.
The FM understands that the proposal is being taken seriously, but it could lead to further clashes with labour. The Federation of Democratic Unions of South Africa (Fedusa) said on Tuesday that under no circumstances could its members’ pensions be used to plug the budget hole. Fedusa’s Ashley Benjamin tells the FM that its 250,000 members in the public service wouldn’t allow this — and the federation would consider legal action to stop it.
Steenhuisen says Godongwana’s new budget has to mark a shift from the cycle of plugging holes. “We don’t have many good options on the table, and that’s what makes these things hard. You’ve got things like fuel levies, VAT, personal income tax, and when you run the numbers, each of them will have an upside and a downside. But in doing so, you can’t give up on growth,” he says.
“You’re going to have to look across government to see how we can reduce wasteful expenditure, ghost employees, those sorts of things — and then work towards putting in place concrete measures, then stop talking about structural reforms but actually do them, with timelines. Maybe in government, things are slower, and things take longer, but where there is a will, there’s a way.”
On the upside, Steenhuisen says the budget process was a positive learning curve for the GNU. After the ANC’s partners were largely ignored ahead of the failed attempt at tabling the budget, the process towards the second version on March 12 has been more inclusive. “It was a lot more constructive than it was two weeks ago,” he says.
The budget process and the quarter after quarter lacklustre economic data show South Africa has to start thinking outside the box to grow the economy — time is running out.
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