EDITORIAL: Budget moment marks an end to ANC monopoly

The prospect of yet another attempt at a national budget is exhausting. But this week’s Budget 3.0 is a huge moment in SA’s political life, as well as being an important one for the country’s public finances.

After two failed attempts at forcing through a big increase in spending funded with hikes in VAT, finance minister Enoch Godongwana seems finally to have been humbled into a different approach. He ended up meeting individually with each of the government of national unity parties to forge a compromise that would enable the budget to be tabled and approved.

He and his colleagues in the ANC have conceded that the approach to the budget has to be much more consultative in future. And that’s not just because the courts ultimately threw out the VAT increase. It is, crucially, because the ANC has finally learnt the hard way in the course of the budget debacle that it does not have a monopoly on policy decisions. That applies just as much to any policy in any other area of government as it does to fiscal and economic policy.

For this reason alone, Budget 3.0 is a huge moment. Assuming it all goes smoothly, it will effectively mark the first time in the GNU’s 11-month history that it has fought through to a collective decision that reflects a compromise among all the parties.

That’s an important political signal. It is also an important signal for the markets, which have been looking for signs that the GNU is a genuine and reasonably durable coalition. However, the nature of the budget compromise will be important for the markets too, and Godongwana’s numbers on Wednesday will be carefully scrutinised.

Removing the VAT increase leaves a R69bn revenue hole in the budget for the three years of the medium term. That’s the R75bn from two successive 0.5 percentage point hikes minus the extra zero rating that was proposed to cushion the poor from those hikes. But the shortfall is likely to be higher, because in the post-Trump tariff world, there is no way Godongwana’s economic growth forecasts are realistic.

Even the optimists don’t expect growth of more than 1.5% this year, well down on the 1.9% pencilled into the February and March budgets. The Treasury will be revising down its growth forecasts and with that is likely to go a downward revision to its revenue forecasts.

For the market, the bottom line is what matters — essentially, what will the new deficit and debt ratios be? The Treasury has long promised rising primary fiscal surpluses that will stabilise the debt-to-GDP ratio in the coming years, projecting that the ratio will peak in the 2025/26 fiscal year before starting to decline gradually. The level of that peak has edged up in the past few budget iterations. But if it wants to keep markets on its side and avoid driving up the price they charge the government to borrow, the Treasury must again deliver rising primary surpluses and a debt ratio that stabilises this year.

That means closing the revenue gap by cutting spending. Everybody in the GNU now seems keen on a thorough review of government spending. Probably nobody in the GNU cabinet will want their own departmental budget cut. But cuts there will have to be — at the very least to the R232bn of extra spending that Godongwana has pencilled in, but probably also to baselines.

We trust the process of consultation has been mature enough to allow for sensible compromises to be reached, albeit tough ones. The priority will have been to find a solution to close the R13.5bn revenue gap for this year and set out a broad path for the medium term, even if the details aren’t yet agreed.

The more important budget, then, will be October’s medium-term budget, when some real spending decisions will have to be made and agreed among the parties. If the budget debacle serves to force political leaders to apply their minds in earnest to the tough trade-offs to be made to turn around SA’s public finances, that will be a good outcome.