SA Budget Passes Amidst Coalition Tensions: South Africa’s budget framework narrowly secured approval on Wednesday, but the absence of support from the Democratic Alliance (DA) has cast serious doubts over the stability of the ruling coalition. The African National Congress (ANC) had to rely on smaller parties to pass the budget, signaling a deep rift within the alliance.
DA Rejects VAT Increase, Coalition Crumbles
The DA strongly opposed the proposed 0.5% increase in Value Added Tax (VAT) this year, with an additional 0.5% hike planned for next year. The National Treasury insists the increase is essential to address a R60bn ($3.3bn) fiscal shortfall, partly due to the withdrawal of U.S. funding for HIV/AIDS programs.
The budget narrowly passed with 194 votes in favor and 182 against. The Economic Freedom Fighters (EFF) and former president Jacob Zuma’s Umkhonto we Sizwe (MK) party aligned with the DA in opposing the measure, while smaller parties like the Patriotic Alliance backed the ANC.
Political Fallout: “The Coalition is Over”
Analysts believe the ANC-DA coalition is effectively broken. Peter Attard Montalto, managing director at consultancy Krutham, stated, “There is a complete breakdown in trust, both personally with the president and between the parties.”
ActionSA, led by businessman and former Johannesburg mayor Herman Mashaba, provided last-minute support to the budget. However, Mashaba made it clear that ActionSA only backed the budget on the condition that all tax increases be scrapped within 30 days.
ANC Unfazed by DA’s Exit
ANC chairperson Gwede Mantashe dismissed DA’s withdrawal threats, stating, “Let them walk out.” President Cyril Ramaphosa, in a leaked recording, accused the DA of backing itself into a “cul-de-sac.”
Market Reaction: Rand Declines, Economic Concerns Rise
The political uncertainty rattled financial markets, with the South African rand falling 1.6% against the U.S. dollar, making it the worst-performing emerging market currency of the day. The cost of five-year credit default swaps (CDS), a measure of default risk, surged to its highest level since the coalition was formed.
DA Plans Legal Action to Overturn Budget Approval
Following the vote, DA leader John Steenhuisen announced plans to challenge the budget framework in court. “No matter what ActionSA says, no matter how they try and spin it, the reality is there will be a VAT increase on the first of May,” he stated.
The passage of the budget without full coalition support signals potential political instability ahead, with the ANC now navigating governance without its largest coalition partner. The next few weeks will be crucial in determining whether the government can survive without the DA or if South Africa is heading for a deeper political crisis.
