Source: Reuters.

The unprecedented decision by the GNU Cabinet to postpone the Budget until 12 March 2025 because of disagreement over tax increases will inevitably have unintended consequences for SA’s political economy.

Nonetheless, if the eventual Budget in March turns out to be truly committed to growth and job creation (as outlined in the recent GNU Medium Term Development Plan) the delay will be worthwhile if the GNU gets agreed ‘trade-offs’ and better outcomes for the economy as a whole.

Fundamentally, the sharp controversy about the tax burden can basically be seen as symptomatic of the fact that economic growth in SA has been too low for too long. The tax base as a whole has shrunk as a result, given persistently low growth, thus limiting financing options.

The postponed Budget will nonetheless create an elevated level of policy uncertainty for now, already reflected in the rand. Markets will be closely monitoring the GNU’s progress in reaching consensus on the final Budget.

It also comes at a time globally when risks to SA are also higher. However, the fiscal situation has not been left open-ended, and the amended Budget is to be presented on 12 March.

National Treasury communication strategies in the interim will need to be adapted to the new circumstances. Between now and 12 March there should be an informed and reasonable debate about what fiscal options are indeed available to SA to strike the right balance between spending, borrowing, and taxing in ways that promote policy certainty and job-rich growth.