Rapid changes in global geopolitics mean that this week’s Budget speech will takes place in an entirely different context, Business Leadership South Africa CEO Busisiwe Mavuso said in her weekly newsletter on March 10.

The Budget speech, which was meant to be delivered on February 19, was postponed at the last minute owing to a contested value-added tax (VAT) hike.

Finance Minister Enoch Godongwana is set to present a reworked Budget on March 12.

The US’s global actions had been forcing governments around the world to think in completely new ways, Mavuso said.

Some of those actions affect South Africa directly, with significant withdrawals of funding, including $430-million a year to fund the treatment of HIV/Aids, and the US withdrawal from the Just Energy Transition Partnership, to which it had previously committed $1.5-billion of grant and commercial funding under the Biden administration, as reported by Engineering News on March 6.

This directly affects the funding of projects in South Africa and government will have to pick up some of the slack or repair its diplomatic relationship with the Trump administration.

However, achieving this would necessitate a significant reversal of South Africa’s race-based economic policies, as well as amending or repealing the Expropriation Act.

Additionally, it would require abandoning its pursuit of legal action against Israel and its leaders at the International Court of Justice, as well as exercising more restraint in its diplomatic engagements – particularly by avoiding the escalation of tensions through closer ties with Iran, a known adversary of US interests.

“The global economic outlook now looks to be clouding over as businesses and nations brace themselves for trade wars. As hosts of the G20 this year, our international engagement will help position South Africa in this new geopolitical reality, but our domestic reality must adjust to it too,” Mavuso said.

She admitted that the country’s fiscal position did not leave the government with many options.

However, she argued that the same was true across the world, with average debt at levels not seen since World War Two.

“Economies worldwide are being thrust into this environment and you’re seeing governments go where they’ve never gone before. As many governments are coming to realise, there is little option but to find ways to do more with less. We are facing complexity of a different kind to anything we have faced before,” Mavuso said.

Godongwana’s February 19 Budget was stalled over the issue of a two percentage point increase in VAT, from 15% to 17%.

Increasing VAT was initially tabled as a way to balance the books of a Budget that also increased spending on programmes to support the poor. However, with VAT increases facing strong political resistance, government was now having to find ways to cut down on expenditure while squeezing what revenue was possible from other sources, Mavuso said.

“This is going to require the art of the possible. Cutting back expenditure must happen in ways that protect economic growth. And we must somehow ensure that government service levels are not only sustained but improved, particularly at local government level, as President Cyril Ramaphosa made clear in his setting up of a task team to deal with Johannesburg’s inexorable decline. To find the way to the possible, we will need to think about things in a different way,” Mavuso said.

She said the Government of National Unity (GNU) still had the potential to do that, as it brought new ways of thinking to the table through its multiparty constituents.

“The challenge will be to channel that new thinking in ways that are productive and find the opportunities to drive government finances in the right way, while also ensuring delivery,” she said.

Mavuso reiterated that fiscal policy was critical to business confidence.

“A few years ago, we were facing catastrophe, with investors having lost confidence in government’s ability to control spending and debt levels. We were in a debt/growth spiral, with every rand of government spending leading to more than a rand withdrawn by panicking investors,” Mavuso noted.

She noted that, since then, government had managed to restore some degree of trust by sometimes delivering on its promises to control spending and rein in debt. This has translated into better prices for government bonds and has led some ratings agencies to slightly upgrade their views on government’s creditworthiness.

“Whatever the GNU brings to the table for the Budget on [March 12], it is imperative that it continues this trajectory, earning increased confidence from investors.

“Business and investors have been building confidence in the ability of the GNU to advance structural reforms while remaining stable, and the Budget is a clear opportunity to demonstrate that their confidence is well-placed,” Mavuso said.

However, Mavuso said more tax was going to be needed, despite the fact that numerous economic and political commentators have pointed out ways to cover the gap by cutting expenditure alone.

“Without VAT, though, the options are limited. Higher personal or corporate tax rates just push economic activity outside of the country where taxes are lower, leaving revenue worse off. Some more narrow taxes could help but, in the absence of VAT increases, there is going to have to be creative thinking about expenditure savings,” she said.

According to Democratic Alliance spokesperson on finance Dr Mark Burke, the R60-billion in new expenditure that the National Treasury said it needed to fund is only 3% of the overall R1.9-trillion budget.

“There is no need to tax to find these funds, which can easily be sourced from failing, failed and underperforming programmes and subprogrammes. South Africa doesn’t have a revenue problem, it has a problem prioritising spending on programmes that drive growth and in turn job creation. We do not have a shortage of tax revenue, we have a shortage of scrutiny,” he said.

“I hope the GNU has been able to take inspiration from the global environment and the willingness of governments to tackle challenges in new ways. Improving the outcomes from government spending, ensuring that quality services are delivered, is critical. The GNU must find credible ways to do that, through improved efficiencies and by allocating spending to where it can drive investment,” Mavuso said.

She added that the test of Wednesday’s Budget would be how well it delivered the needed balancing act.

“I hope we are left with greater confidence in the effectiveness of the GNU, government’s ability to manage its finances, and the outlook for economic growth,” Mavuso said.