Budget impasse threatens South African coalition government

South Africa’s leaders are in disagreement over the national budget, due next week, in a major test for the future of the country’s coalition government.

Minority parties in President Cyril Ramaphosa’s government unexpectedly rejected a draft budget last month. This draft proposed raising VAT to fill a 60 billion Rand ($3.3 billion) fiscal gap. This gap was created by President Donald Trump’s partial withdrawal of US funding for HIV/AIDS programs.

Members of the smaller parties in the coalition told the Financial Times that no agreement had yet been reached. This is despite Ramaphosa’s office stating on Monday, after an emergency cabinet meeting, that the Finance Minister and the Treasury were “preparing to finalize the budget and present it to parliament.”

A government official, speaking to the FT on condition of anonymity about internal discussions, said, “This is by no means a done deal.” They added, “Some parties will not accept any tax increases, but the reality is that there is no money.”

The budget impasse is growing in South Africa, which has been governed by a large coalition since July. This happened after Ramaphosa’s African National Congress (ANC) failed to secure an outright majority for the first time since the fall of the apartheid regime and partnered with nine other parties.

Songezo Zibi, leader of Rise Mzansi, one of the coalition partners, said, “The ANC was the majority party for 30 years, so it took it for granted that the budget would pass. But in countries where there is no single majority party, it is not that easy, and the ANC did not seem to understand that a budget impasse could paralyze a country.”

The main disagreement was over ANC Finance Minister Enoch Godongwana’s plan to raise VAT from 15% to 17%. This proposal was opposed by the Democratic Alliance (DA), the second-largest party in the coalition, and even some ANC ministers.

The DA, which advocates for the private sector, proposed closing the gap with a series of other measures. These include selling two major port concessions to the private sector and creating a cost-cutting task force similar to Elon Musk’s efforts in Washington.

DA leader John Steenhuisen, who is also Minister of Agriculture in Ramaphosa’s cabinet, told the FT on Wednesday, “If we don’t grapple with the hard realities facing the country, we will be stuck in a cycle of raising taxes we can no longer afford and taking on more debt.”

After Steenhuisen’s rejection of the initial budget, the ANC stated that it was critical to find money to cover salary increases for civil servants and “above-inflation increases in social grants, which will protect the most vulnerable from the rising cost of living.”

The party emphasized that South Africa’s fiscal policy should “support economic transformation and protect the poor while promoting inclusive growth.”

South Africa’s debt-to-GDP ratio has risen to approximately 75%, up from less than 24% in 2008.