By Tarryn-Leigh Solomons
Image credit: South African Government
The postponement of the much-anticipated National Budget Speech – originally set for 19 February but now pushed to 12 March – has sent ripples through financial markets, raising concerns over policy uncertainty and potential tax hikes.
According to Harry Scherzer, CEO of Future Forex, the unprecedented postponement of South Africa’s National Budget Speech has sent shockwaves through financial markets, with the Rand weakening significantly in response. This delay, the first of its kind in democratic South Africa, did not just rattle investor confidence; it also revealed divisions within the Government of National Unity (GNU), exposing the fragility of coalition economic decision-making.
“Central to the delay is a battle over proposed tax increases, including a large VAT hike. As South Africa’s fiscal position has worsened, Finance Minister Enoch Godongwana had been broadly expected to announce measures to reduce the budget deficit. However, the resistance within the GNU underscores the political tensions at play. A VAT increase is extremely politically sensitive, as it disproportionately hits lower-income households. Many coalition partners cannot afford to support such a hike, particularly as they prepare for crucial and much-contested municipal elections.”
The Rand fell sharply in response to the postponement, signalling investor concern over economic stability. However, on Thursday morning, the Rand began to partially recoup losses as focus shifted to the G20 meeting. “Investors thrive on certainty, and this delay has added a risk factor the country cannot afford. Given South Africa’s already faltering fiscal position, any signs of instability raise fears about future debt servicing, possible credit rating downgrades, and reduced foreign investment,” Scherzer says.
Frank Blackmore, Lead Economist at KPMG, noted that shifting budget timelines have fuelled speculation, with talk of a VAT increase – potentially as high as 2% – gaining traction in financial circles.
“What a difference a week can make! Just last year, few expected a VAT hike, and now market chatter suggests it may be on the table. The shock factor comes from the severe impact this would have, particularly on lower-income South Africans,” Blackmore noted.
He warned that such a move would be highly inflationary, reduce disposable income, and disproportionately burden the poor, raising concerns over regressive taxation policies. Markets have already reacted negatively, with volatility seen across bonds and equities following the uncertainty.
Blackmore also pointed to a lack of clear economic strategy from the Government of National Unity, saying that a well-defined three-year plan should have been in place before the budget announcement. “One would have expected a structured economic roadmap by now
