The unprecedented decision by the Government of National Unity (GNU) Cabinet to postpone the Budget until 12 March because of disagreement over tax increases will inevitably have unintended consequences for South Africa’s political economy.

Prof Raymond Parsons, economist from the NWU Business School, says if the eventual Budget in March turns out to be truly committed to growth and job creation (as was outlined in the recent GNU Medium Term Development Plan) the delay would have been worthwhile if the GNU gets agreed trade-offs and better outcomes for the economy as a whole.

“Fundamentally, the sharp controversy about the tax burden can basically be seen as symptomatic of the fact that economic growth in South Africa has been too low for too long. The tax base as a whole has shrunk as a result, given persistently low growth, thus limiting financing options.”

He says the postponed Budget will nonetheless create an elevated level of policy uncertainty for now, which has already been reflected in the rand.

“Markets will be carefully monitoring the progress being made by the GNU from now on in finding sufficient consensus about the final Budget. It also comes at a time globally when risks to South Africa are also higher.”

However, according to Prof Parsons, the fiscal situation has not been left open-ended, and the amended Budget is to be presented on 12 March.

“In the interim, National Treasury communication strategies will need to be adapted to the new circumstances. Between now and 12 March there should be an informed and reasonable debate about what fiscal options are indeed available to South Africa to strike the right balance between spending, borrowing and taxing in ways that promote policy certainty and job-rich growth.”