Finance Minister Enoch Godongwana has announced the date for the third Budget speech, highlighting the impact of recent VAT discussions and the importance of coalition politics in South Africa.
Image: GCIS
The local currency is on a roll, dropping below the R18.50 market following the news that National Treasury will have a third stab at the National Budget.
Finance Minister Enoch Godongwana on Wednesday said that National Treasury will table Budget 3.0 on May 21. This follows seemingly endless disagreements between political parties over a contentious hike in the VAT rate.
On the first day of trading following his pronouncement, the rand had gained from R18.89 on Wednesday’s close to R18.45 as of mid-morning on Friday. Although US President Donald Trump’s vacillatory position regarding his tariff trade war adds to this improvement, stability in the Government of National Unity contributed much to the increase.
The Government of National Unity was on rocky ground following sabre rattling from the coalition’s second largest party, the Democratic Alliance, which threatened to leave the multi-party government.
Generally, markets react adversely to political uncertainty. The JSE’s All Share index was up almost a percent on Friday morning.
Investec chief economist, Annabel Bishop, said earlier this week that the currency had moved back to R18.60 against the dollar as per their forecast for the first quarter of the year. This follows it hitting R19.93 early last month on fears the DA would exit the government of national unity, which worried investors and financial markets.
After the first Budget failed to be passed in February – with a proposed VAT hike from 15% to 17% – it was tabled again in March, being approved by a slim majority. This spending plan was based on a fiscal framework that dropped the proposed increase to 15.5%.
However, after some confusion as to whether this included the 0.5 percentage point increase in tax at the till points, the DA and EFF joined forces to have this overturned in the Western Cape High Court.
Before the judges could rule, Godongwana reversed course, stating that the VAT hike would not go ahead. Instead, he said, relevant legislation would be submitted to keep the rate the same.
Bishop explained that “South Africa will see a third revision to the budget, which is expected to see some expenditure cuts, given the difficulty in pushing through higher taxation, with the economy already weak, and a risk of slower growth”.
She added that the government’s financial position will be tight, with any additional revenue going to expenditure and fiscal consolidation delayed.
“While SA is yet to agree on a budget, the two main political parties in the GNU are expected to work closer together,” said Bishop.
The local currency has also benefited from relative dollar weakness as investors seek assets with a higher rate of return.
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