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South Africa's GNU at risk after parliament backs budget
18 hrs ago | Views
South Africa's parliament approved a key piece of budget legislation despite objections from the second-biggest party in the coalition government, raising the risk of the alliance unravelling.
The National Assembly approved the fiscal framework, which establishes economic policy, revenue projections and limits on government spending, by 194 votes to 182 at a sitting in Cape Town on Wednesday.
The legislation included Finance Minister Enoch Godongwana's proposal to increase value-added tax (Vat), although it was accompanied by a non-binding recommendation that the National Treasury consider an alternative way to raise revenue.
The Democratic Alliance (DA) wanted a clear commitment to scrap the proposed Vat hike and for the Treasury to do more to fire up the economy and review spending.
While the DA hasn't specified if it will leave President Cyril Ramaphosa's so-called government of national unity (GNU), that prospect has unnerved investors and weighed on the rand.
The currency held a loss against the dollar, trading about 1.9% weaker at R18.82 by 6:52pm in Johannesburg, the weakest level on a closing basis since 16 January.
The business-friendly DA has 87 of the 400 seats in the National Assembly and if it did decide to go into opposition, it would reduce the coalition to exactly 200 votes, assuming none of its other members quit. If they did, it would open up the possibility of the ANC needing to enlist the support of leftist parties such as the Economic Freedom Fighters (EFF), which favours widespread nationalisation, to retain power.
The Freedom Front Plus, which is part of the ruling alliance and has six parliamentary seats, also voted against the fiscal framework.
DA leader John Steenhuisen said his party will file a legal challenge against the passing of the budget in the High Court because proper procedures weren't followed.
He said in a statement that Tuesday's "sitting of parliament's finance committee was not compliant with the standing rules" of the legislature because all parties' proposals weren't considered, a legal shortcoming that was carried forward into the National Assembly.
"We look forward to this matter being addressed in court for the benefit of all South Africans who do not agree to this budget.
"The DA refuses to give in to the ANC's tax increases," said Steenhuisen.
While there is still scope for a compromise to be reached further along in the budgetary process, it will be tricky for the main parties to continue working together given the prevailing acrimony.
"For the GNU I don't think you can vote against a budget and tomorrow you want to go and be part of its implementation," Godongwana told Wednesday's sitting. "It can't be. We've got to draw a line on that point."
Ramaphosa established the ruling alliance in June last year, a month after national elections failed to produce an outright winner, bringing together parties with widely disparate views on a range of issues. The DA was allocated six seats in the cabinet.
"The president has said that the government will remain stable, but he has made no comment about the structure of GNU," presidential spokesman Vincent Magwenya said in an interview after Wednesday's vote.
Besides clashing on the budget, the coalition's members have been at odds over a series of laws spearheaded by the ANC.
The DA has objected to legislation to achieve universal health insurance, which it says is unconstitutional and unaffordable, as well as amendments to an education policy it fears will hurt Afrikaans-language schools. The party also wants adjustments to a land-expropriation law signed by Ramaphosa in December that makes it easier for the state to seize property in the public interest.
The budget released by Godongwana last month envisioned Vat being increased by 0.5 percentage point from May and by the same quantum in April 2026, raising R75 billion ($4 billion) over three years.
The Treasury has said corporate taxes are high by international standards and increasing them may deter investment and stifle economic growth, while raising personal income tax rates is unlikely to deliver the targeted revenue because wealthy individuals will find ways to avoid paying. That leaves it with few viable options to fill the hole in the budget if the Vat hike is scrapped – although Godongwana reiterated that that remained a possibility.
"We couldn't allow a situation where the adoption of the fiscal framework is delayed, which would have resulted in the rest of the processes of approving the budget" also being affected, Mdumiseni Ntuli, the ANC's chief whip in parliament, told broadcaster Newzroom Afrika.
The National Assembly approved the fiscal framework, which establishes economic policy, revenue projections and limits on government spending, by 194 votes to 182 at a sitting in Cape Town on Wednesday.
The legislation included Finance Minister Enoch Godongwana's proposal to increase value-added tax (Vat), although it was accompanied by a non-binding recommendation that the National Treasury consider an alternative way to raise revenue.
The Democratic Alliance (DA) wanted a clear commitment to scrap the proposed Vat hike and for the Treasury to do more to fire up the economy and review spending.
While the DA hasn't specified if it will leave President Cyril Ramaphosa's so-called government of national unity (GNU), that prospect has unnerved investors and weighed on the rand.
The currency held a loss against the dollar, trading about 1.9% weaker at R18.82 by 6:52pm in Johannesburg, the weakest level on a closing basis since 16 January.
The business-friendly DA has 87 of the 400 seats in the National Assembly and if it did decide to go into opposition, it would reduce the coalition to exactly 200 votes, assuming none of its other members quit. If they did, it would open up the possibility of the ANC needing to enlist the support of leftist parties such as the Economic Freedom Fighters (EFF), which favours widespread nationalisation, to retain power.
The Freedom Front Plus, which is part of the ruling alliance and has six parliamentary seats, also voted against the fiscal framework.
DA leader John Steenhuisen said his party will file a legal challenge against the passing of the budget in the High Court because proper procedures weren't followed.
He said in a statement that Tuesday's "sitting of parliament's finance committee was not compliant with the standing rules" of the legislature because all parties' proposals weren't considered, a legal shortcoming that was carried forward into the National Assembly.
"We look forward to this matter being addressed in court for the benefit of all South Africans who do not agree to this budget.
"The DA refuses to give in to the ANC's tax increases," said Steenhuisen.
While there is still scope for a compromise to be reached further along in the budgetary process, it will be tricky for the main parties to continue working together given the prevailing acrimony.
"For the GNU I don't think you can vote against a budget and tomorrow you want to go and be part of its implementation," Godongwana told Wednesday's sitting. "It can't be. We've got to draw a line on that point."
Ramaphosa established the ruling alliance in June last year, a month after national elections failed to produce an outright winner, bringing together parties with widely disparate views on a range of issues. The DA was allocated six seats in the cabinet.
"The president has said that the government will remain stable, but he has made no comment about the structure of GNU," presidential spokesman Vincent Magwenya said in an interview after Wednesday's vote.
Besides clashing on the budget, the coalition's members have been at odds over a series of laws spearheaded by the ANC.
The DA has objected to legislation to achieve universal health insurance, which it says is unconstitutional and unaffordable, as well as amendments to an education policy it fears will hurt Afrikaans-language schools. The party also wants adjustments to a land-expropriation law signed by Ramaphosa in December that makes it easier for the state to seize property in the public interest.
The budget released by Godongwana last month envisioned Vat being increased by 0.5 percentage point from May and by the same quantum in April 2026, raising R75 billion ($4 billion) over three years.
The Treasury has said corporate taxes are high by international standards and increasing them may deter investment and stifle economic growth, while raising personal income tax rates is unlikely to deliver the targeted revenue because wealthy individuals will find ways to avoid paying. That leaves it with few viable options to fill the hole in the budget if the Vat hike is scrapped – although Godongwana reiterated that that remained a possibility.
"We couldn't allow a situation where the adoption of the fiscal framework is delayed, which would have resulted in the rest of the processes of approving the budget" also being affected, Mdumiseni Ntuli, the ANC's chief whip in parliament, told broadcaster Newzroom Afrika.
Source - Bloomberg
