South Africa still faces a major budget threat

The National Treasury says that it is confident that both houses of Parliament will pass the Division of Revenues Bill before the end of July 2025, so any disruptions from the delayed budget process should be minimal.

However, if the process is somehow delayed beyond this, the country faces major financial threats.

Because the budget process has already been significantly delayed, the Division of Revenues Bill was not passed before the start of the provincial financial year on 1 April, and will likely not be passed before the start of the municipal financial year on 1 July 2025.

This means that elements of the Division of Revenue Act will kick in, allowing some transfers from the national fiscus for the 2025/26 financial year, despite the bill not being enacted.

The Act allows for 45% of the 2024/25 financial year’s equitable share and conditional grants to provinces and municipalities to be transferred before the 2025 Division of Revenues Bill is enacted into law.

Responding to a parliamentary Q&A about the process, National Treasury said that as long as the bill is processed before the end of July, there should be minimal disruption.

It said that provinces were given advance warning of the delays, and the retabling of their budgets et al should come with minimal changes and should be aligned with the budget of 21 May 2025.

“Should the 2025 Division of Revenues Bill be passed by both houses in Parliament before the end of July 2025, the threats will be low,” the Treasury said.

“Should this process be delayed beyond end July 2025, the threat will become major as the 45% of the 2024/25 financial year equitable share and conditional grants to provinces…will be exhausted and provinces will face major cash flow challenges that will derail service delivery,” it said.

This would have a siginificant impact on major sectors like health and education in particular, it warned, as these are largely funded from transfers from the national fiscus.

Treasury noted that the same threat would face municipalities, but at a later date, as the municipal financial year only commences on 1 July 2025, so the 45% of the previous year’s equitable share and conditional grants will be transferred only from that date.

“The threat for smaller and rural municipalities will be larger than for bigger, more urban municipalities as they are more reliant on transfers from the fiscus to fund their operations,” it said.

No 4th attempt

The Treasury said that after the tabling of the budget, it is up to Parliament and its processes to carry it forward.

It said that it relies on the current political and technical structures to consult around the budget and find consensus within the Government of National Unity (GNU) to ensure that it passes.

This consultative process came very late in the game, however, after both the first and second attempts at getting the budget across the finish line fell apart.

Thie first budget was widely rejected by various parties due to the inclusion of a two percentage point increase to VAT. The backlash was so pressing that the original budget wasn’t even tabled.

Following intense negotiations and compromises, the second budget was tabled with a smaller one-percentage-point VAT hike over two years, but this did not get support from the Democratic Alliance, the second-largest party in the GNU.

This forced the GNU’s biggest party, the ANC, to fish for support outside the coalition, finding support from minority parties, Action SA and BOSA.

These smaller parties voted in favour of the budget on condition that the VAT hike would be later removed, and purportedly to prevent further delays. However, there was no legal way to actually do this.

The second budget ended up in political limbo, with legal action by the Democratic Alliance ultimately getting it pulled and paving the way for the third, VAT-hike-free budget to be tabled.

Ahead of the tabling of the third budget on 21 May, Deputy Finance Minister David Masondo said that there would be no ‘Budget 4.0’, expressing confidence that the third framework would breeze through approvals.

He was proven correct when the third fiscal framework—which establishes economic policy, revenue projections and limits on government spending—was approved by the National Assembly on 12 June.

It got the full approval of the GNU, including the Democratic Alliance, and passed 268 votes to 88, with two abstentions.

This set the tone for the rest of the budget process, with little indication of the troubles that had seen the previous budgets collapse.

“National Treasury cannot pre-empt the outcome of those parliamentary processes, but the Minister of Finance and the department will continue to provide analytical support and brief parliamentary committees promptly so that the House can process the Bills within the legislated deadlines,” Treasury said.