The Budget brouhaha and you — wallet pressure, service strain and the price of political paralysis

2 Apr 2025

While our eyes will be glued to goings-on in the National Assembly, the real impact is on the rand in your pocket, the reliability of your local clinic and the size of your next salary.

Budget negotiations are seldom smooth, but this year’s impasse has added new layers of complexity; a suspended VAT hike, a looming R28-billion shortfall and a 30-day deadline to find consensus. As political dynamics shift precariously within the government of national unity (GNU), real implications extend well beyond Parliament to the financial realities of households and the quality of public services.

“It’s not just about taxes and spending. It’s about whether we still have a coherent policy direction that people can trust,” economist Jee-A van der Linde of Oxford Economics Africa told Daily Maverick.

Parliamentary Budget debates usually end in handshakes and headlines, but not this year. Treasury’s plans have stalled, with the GNU fraying under the pressure. Meanwhile, the economy is wobbling from a cocktail of policy uncertainty, political brinkmanship and currency volatility.

While our eyes will be glued to goings-on in the National Assembly, the real impact is on the rand in your pocket, the reliability of your local clinic and the size of your next salary.

In limbo yet again but now with a countdown

When Finance Minister Enoch Godongwana tabled his 2025 Budget in March (for the second time this year), he was blunt. Treasury required two things for his prescription to close the fiscal hole: a 0.5 percentage point increase in VAT (effective Thursday, 1 May) and no adjustment to personal income tax (PIT) brackets – a silent tax grab known as bracket creep.

But political resistance was swift. The DA, ActionSA and others baulked. Now, in an extraordinary turn, ActionSA has partnered with the ANC to pass the fiscal framework with conditions; chief among them: suspend the tax hikes and give Parliament and Treasury 30 days to come up with alternatives.

In practice, Action SA's recommendation is for the VAT hike and the PIT bracket freeze to be delayed, not scrapped. Treasury would have to explore cuts, alternative taxes or creative revenue solutions to offset the R28-billion shortfall. If no plan emerges, the original measures could return. Fast.

“If Parliament gives the go-ahead by mid-May, the VAT hike could be implemented with just a few weeks’ notice. But it depends on the political will,” Van der Linde continued.

What actual price increases are there?

At the centre of the battle is the suspended 0.5 percentage point VAT increase. Originally scheduled for 1 May, it has now been pushed into limbo. Should the government reinstate it, the increase could take effect as early as July or August. The necessary legal and administrative changes are minimal. According to Dawie Roodt, chief economist at the Efficient Group: “With VAT, it’s just a date change in the VAT Act.”

The implication is that implementation could be rapid if the political momentum shifts in its favour.

The personal income tax bracket freeze, another revenue-raising measure, also remains suspended. However, because the tax year began on Saturday, 1 March, it could be backdated if reinstated. As Roodt explained: “This is a tax increase by stealth. Most people don’t even notice they’re paying more.”

Van der Linde added that the impact on individuals could be substantial.

“A salaried worker earning R25,000 a month could pay R3,000 to R4,000 more in tax over the year compared to a scenario where brackets were adjusted for inflation. That’s money that could have gone to debt, savings or food.”

Although fuel levies are frozen for now and sin taxes have already been implemented, the VAT and PIT decisions carry far broader implications for household budgets. If the VAT hike is implemented later in the year, it will affect a wide range of consumer goods and services not zero-rated – including transport, electricity, hygiene products and telecommunications. A household spending R10,000 per month on taxable goods and services could end up paying R600 more per year if the VAT increase returns.

“People focus on income taxes, but consumption taxes like VAT hurt the poor the most – and the irony is, it’s the least controversial politically,” Roodt continued.

Borrowing and blowback

If the VAT and PIT measures do not go ahead, Treasury will be forced to consider alternative ways to close the R28-billion gap, and one option is increased borrowing. However, South Africa already spends more than 20% of its revenue servicing debt, and any additional borrowing is likely to lead to a higher cost of capital. That has knock-on effects for inflation, investment and service delivery.

“Every rand spent on interest is a rand not spent on a nurse or a teacher,” Van der Linde said. His point speaks directly to the crowding-out effect of rising debt service costs. As the government borrows more, it reduces the fiscal space available for everything else – from social grants to infrastructure maintenance.

Roodt echoed this concern. “The longer this uncertainty lasts, the more we’ll pay in the end – either in tax or in inflation.” In other words, fiscal delay is not neutral. It incurs costs, even in the absence of formal tax increases.

Public service squeeze

If Treasury does not rely on tax or debt to fill the gap, then the only other option is spending cuts. But finding R28-billion in expenditure savings is no small feat, Roodt notes. “The problem isn’t cutting fat – it’s cutting into muscle. We can delay a road, but we can’t delay a school’s electricity bill.”

Van der Linde pointed out that infrastructure grants could be a likely target for reprioritisation. “It’s the easiest thing to delay politically, but economically it’s disastrous in the long run.” Municipalities, already under strain, may face reduced transfers. That translates into service interruptions or degradation: delayed road maintenance, fewer clinic staff, slower water infrastructure upgrades.”

Van der Linde added: “We’ve run out of easy choices. Any delay now shifts the burden onto the poorest through inflation or failing services.”

Treasury’s credibility, not just credit, on the line

Beyond numbers, this Budget saga is also testing institutional credibility. Treasury’s authority, once the gold standard of South African public finance, is being challenged by the fragility of coalition politics. The 30-day extension may buy time, but it has also placed the institution in a vulnerable position – caught between political imperatives and fiscal responsibility.

Should Treasury fail to propose a viable and credible set of alternatives by early May, markets and ratings agencies could interpret the delay not as prudence, but as paralysis.

The rand at the mercy of markets

The rand has weakened slightly this week, but the movements are not solely driven by domestic politics. Much of the global market is waiting on US President Donald Trump’s expected retaliatory tariffs announcement, which has strengthened the dollar against most currencies.

Still, if Trump’s announcement proves underwhelming, South Africa’s fiscal drama may once again take centre stage in foreign exchange markets. And if the Budget process derails or becomes even more disorderly, the rand could face renewed pressure. A weaker rand doesn’t just concern traders – it raises the price of imported essentials like fuel, fertiliser and cooking oil, squeezing households already living close to the margin. That would feed directly into fuel and food inflation – and, ultimately, into the Reserve Bank’s decision on interest rates.

What does this mean for you?

Image created using Napkin

While the VAT and PIT measures are suspended, they are not gone. If they return, implementation could be swift – VAT could take effect by July or August, while PIT could be backdated to 1 March.

Van der Linde offered a pragmatic warning: “We may not feel it now, but the shock will come at year-end when people file their tax returns and realise they owe more.”

Households should not assume that relief is permanent. Roodt stresses that inaction comes with its own price. “If we dodge the VAT hike, great. But be prepared – it may just come back with a new name, or a new spin.”

In practical terms, that means consumers should avoid overextending themselves financially, especially with variable-rate debt. Interest rate cuts are now likely to be delayed. Caution is advisable.

Forgetting about coalition politics for a moment, the story here is one of state credibility, accountability and the fragile relationship between citizens and the state. Will the government raise our taxes, borrow more on our behalf or cut the services we rely on?

That answer is coming soon – and when it does, it won’t be politicians who feel the brunt, it will be the consumer. DM

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