VAT debacle shines a light on a fragile coalition - and R75bn question remains

At 15 minutes past midnight on Thursday, April 24, Finance Minister Enoch Godongwana announced that the controversial VAT hike had been scrapped.

https://youtu.be/FQRR9NmvWPI

Less than 10 hours later, a DA livestream proclaimed the move as the party’s victory, while an ANC-led coalition press conference, scheduled for 10am, eventually began 50 minutes late at the Sandton Sun.

A conference room at the Sandton Sun echoed with press statements, media jabs and declarations of unity, but the big question of the day went unanswered: Where will the money to cover the R75-billion shortfall caused by the VAT U-turn come from?

Theatre of the absurd

The DA came under attack, and journalists covering the Budget fallout also found themselves in the crossfire. Several coalition representatives, including senior ANC officials, expressed irritation with what they characterised as “frivolous” or “biased” media narratives, deflecting scrutiny of their own role in the crisis. Good party leader Patricia de Lille was particularly sharp, accusing the press of creating division rather than documenting it.

“This is not about who claims the loudest voice,” said the ANC’s national spokesperson, Mahlengi Bhengu-Motsiri, during her introductory remarks at the coalition press briefing. “No one party is the alpha and omega in providing solutions.”

The irony was not lost on journalists present, as nearly every party took aim at the DA for its legal action, while simultaneously parroting its arguments.

The DA’s federal chairperson, Helen Zille, said the U-turn was “a major victory for the DA and, more importantly, for millions of South Africans”, adding that the Treasury’s retreat was “born of necessity in the face of likely legal defeat”.

She accused Godongwana of attempting to “exercise unconstitutional powers to impose or withdraw VAT unilaterally”.

The IFP’s national spokesperson, Mkhuleko Hlengwa, cautioned against any party becoming “the Messiah of this moment” and called for a return to the negotiating table.

ActionSA’s Herman Mashaba credited “the collective effort of parties that engaged the ANC in good faith”, calling the reversal “a victory that belongs to you, South Africa”.

Others took more strategic tones: Rise Mzansi described the reversal as “freeing the finance minister from extortion”, while De Lille defended government commitments to Social Relief of Distress grants and infrastructure spending.

The Patriotic Alliance, while celebrating the halt, lambasted the DA as “a party of extortionists”, alluding to its alleged conditional support of a two percentage point (ppt) VAT increase in exchange for the removal of the National Health Insurance and Bela Bills. The EFF, which also initiated court action to halt the VAT hike, were not mentioned in any coalition praise — underscoring the fragile alliances and deep mistrust within the Government of National Unity (GNU).

The economic reality stands

As political parties jostled for credit, the Treasury’s dilemma deepened. With a R75-billion Budget gap that now needs to be filled, suggestions have ranged from SA Revenue Service (SARS) efficiency gains (a December 2024 proposal by SARS Commissioner Edward Kieswetter) to further borrowing or elusive “expenditure reviews”. Not one speaker from the coalition offered clarity on the next steps.

Jee-A van der Linde, senior economist at Oxford Economics Africa, offered a sober assessment to Daily Maverick,

“The latest move does not solve National Treasury’s funding gap conundrum... South Africa will face the same Budget predicament next year,” said Van der Linde.

The Treasury’s 1.9% growth forecast for 2025 is now viewed as delusional. The IMF pegs growth at 1.0%, with domestic analysts calling that generous.

“Even a 0.5 ppt VAT increase wouldn’t have been a panacea,” noted Van der Linde. “But the absence of a plan damages the Treasury’s credibility.”

Daniel Silke, a political analyst and director of Political Futures Consultancy, was more scathing.

“This was a budgetary process that really did not adequately consult other parties,” he said, calling the VAT proposal “a lazy solution”. He linked the crisis to internal ANC leadership struggles ahead of 2027 and warned of a “credibility deficit” in policymaking that could imperil South Africa’s macroeconomic stability.

“The ANC still hasn’t adjusted to coalition dynamics — it no longer holds a majority and must learn to consult. The failure to build consensus before announcing the 2[ppt] hike caused this entire debacle,” said Silke.

This lack of cohesion, said Silke, combined with the DA’s hard legal line and the ANC’s political missteps, “painted the ANC into a corner”, leaving the Treasury with no choice but to back down under public, legal and economic pressure.

Sanisha Packirisamy, the chief economist at Momentum Investments, warned that while the reversal would ease pressure on consumers in the short term, it came at the price of meeting the shortfall elsewhere.

She said the 0.5ppt hike initially tabled on 12 March was intended to raise R13.5-billion to bolster frontline services, including health, education and policing, as well as support a swelling public wage bill.

Van der Linde added that “government bond markets have already begun pricing in a higher risk premium for South African debt. That’s a direct cost to the Treasury.”

Treasury’s blurred lines

ANC Secretary-General Fikile Mbalula claimed, “This Budget is the most perfect Budget in our view,” even as the ANC admitted that its initial VAT push had been overreaching. Mbalula noted that “we started from two [percentage points], we ended at 0.5 [percentage points],” a failed compromise that still imploded the GNU’s fiscal framework.

During the ANC briefing, he acknowledged coalition learning curves, saying: “We recognise we have entered a period of coalitions at a national government level which we may chart as uncharted waters ... we may have performed better.”

That admission points to the broader fractures in coalition governance. Silke warned that these dynamics are not only about policy, but also internal ANC factionalism.

“Different candidates eyeing 2027 are already carving out constituencies. Some want to eject the DA from the GNU entirely,” said Silke.

The Budget crisis, then, becomes a proxy war for broader leadership contests. And while the ANC attempts to manage internal dissent, the broader economy suffers.

“The political flip-flopping on tax,” Van Der Linde observed, “sends the wrong message to foreign investors and contributes to undue cost-of-doing-business pressures.”

The real cost is to the public

The 2025 Budget will have to be tabled for a third time. The Treasury’s disjointed communications and the GNU’s opaque deal-making have imposed opportunity costs. Bond yields are rising, interest rate cuts are off the table, and policy credibility is slipping.

Izak Odendaal, the chief investment strategist at Old Mutual Wealth, noted: “There is a very real cost if you look at the increase in government bond yield. The government is paying about 50 basis points more to borrow money compared to the start of the year”, linking this to “Budget uncertainty and political instability”.

He also highlighted the coalition risk: “Trust between the DA and ANC has seemingly declined due to the VAT episode... From investors’ point of view, the preference is clearly that they kiss and make up and keep the GNU intact and focused on fixing the economy.”

The real question now, he says, is about the Treasury’s next step. “Spending will have to be cut. But where? And will its revised proposals be accepted by the rest of the GNU?”

A confederacy of apathy

On the ground, the impact has been severe. Dr Meshel Muzuva of the Management College of South Africa told Daily Maverick: “We have seen first-hand how the uncertainty surrounding the proposed VAT changes has placed immense strain on our SME partners. Many had already invested time and resources into updating their systems to accommodate the new rate, only to reverse those changes at the last minute.”

Jonathan Faurie, speaking on behalf of Bullion PR, elaborated: “The stop-start approach has impacted our suppliers both financially and operationally.”

Bullion’s managing director, Lola Lazarus, explained how the change had disrupted systems multiple times. “Many SMEs subcontract bookkeepers and accountants… We were then informed at midnight, April 23, that our systems must be altered again.

“These changes back and forth have put pressure on business-to-business relationships. This is an issue SMEs can ill afford in this day and age.

“If South Africa is going to achieve the 1.5% GDP growth that many economists have projected, there needs to be better communication regarding fiscal policy that directly impacts businesses.”

The message from the SME sector is consistent: government communication was poor, the timeline was unreasonable, and support is urgently needed.

The Treasury’s next steps are pivotal. Will it attempt another fiscal adjustment in the Medium-Term Budget Policy Statement? Will it table a fourth version of the Budget? Or will the mounting pressure lead to a Cabinet reshuffle and political realignment within the GNU?

For now, the GNU remains intact, but barely. The Treasury’s credibility has taken a hit. The DA scored a short-term win. And voters remain trapped between power plays, procedural bungling and an economic outlook dimmed by indecision.

The VAT increase may be gone, but the problems faced, and the deficit remain. DM