A dispute between the two largest parties in the ruling coalition over raising value-added tax (VAT) led to the unprecedented postponement of South Africa’s national budget, which depressed the rand and government bonds.
The National Assembly speaker, Thoko Didiza, informed the lawmakers who had gathered to listen to the finance minister’s budget speech that it would now take place on March 12.
The African National Congress (ANC), which lost its parliamentary majority in an election last year, will require the backing of other parties for the first time since apartheid ended to pass the budget.
The budget has been delayed, according to the Democratic Alliance (DA), its primary coalition partner, because it opposed a plan to raise VAT by two percentage points to 17%.
DA leader John Steenhuisen welcomed the move, which he said was “a victory for the people of South Africa,” while claiming the VAT rise would have “broken the back of our economy.”
“I think that it is correct that, when such situations happen, we need to collectively think on the best way forward,” said Didiza, while announcing the postponement to lawmakers and describing the situation as “unprecedented.”
Finance Minister Enoch Godongwana said the government was “grappling” with ways to finance its plans.
“There is a general agreement in the current environment that we need to find a way of funding our priorities. Do we borrow more? Do we cut expenditure? Do we raise taxes? And what are the implications of that?” he told reporters.
The last-minute budget delay caught most people off guard, but there have been disputes between the ANC and DA since the coalition government was formed in June, including over legislation related to health and education.
According to Oxford Economics political analyst Louw Nel, the postponement created “serious questions about the coalition’s ability to deal with major disagreements” and resulted in three weeks of uncertainty.
This comes as US President Donald Trump has been attacking South Africa for several reasons, including the government’s land reform policy and genocide case against Washington’s ally Israel, which led to the suspension of aid this month. Moreover, the country’s economy has been struggling with rising inflation and severe inequality, with over 60% of the population affected by poverty.
According to an article in the Business Day newspaper, the goal of the proposed VAT increase was to fill a billion-rand revenue gap and fund social and educational expenditures.
The year 2018 saw the most recent increase in VAT. Rumours of a further increase have been strongly opposed by a wide range of political parties and labour unions, who claim that the poor will be disproportionately affected despite efforts to protect them with a list of “zero-rated” items.