In many democracies disagreement about the budget is a normal part of political life. Wrangling over government’s spending plans happens in parliament as the necessary pieces of legislation to enact a budget are debated.

SA has been an anomaly. For the last 30 years budgets have been tabled by the finance minister and then more-or-less rubber-stamped through parliament. That reflected the ANC’s majority, but also the authority the finance ministry wielded in the cabinet.

However, our constitution and laws notionally provide plenty of room for debate. The budget requires legislation to be passed through parliament to come into reality. While it has never felt that way, the budget speech and Budget Review are really just proposals on what the government should spend. The actual decisions are then made by parliament in passing the Appropriations Bill and the Division of Revenue Bill.

I call these mechanisms “notional” because historically they’ve not really been of much consequence. While debates happen in parliament, they are largely performance, with everyone aware that the ANC majority will ensure they are passed.

They haven’t always gone smoothly though — the legislative process last year wasn’t completed before the election, forcing delays and bumping legislation into the new parliament for finalisation. The delays forced the government to trigger the legislated backstop for such situations and the previous year’s budget is simply assumed to repeat.

We now live in a different world. With the ANC in minority, it must ensure that parliament will vote through the legislation to enable the budget. To do that it needs the government of national unity to back it, and that means ensuring that the cabinet is fully aligned.

The shock last-minute postponement of the budget speech was obviously because the cabinet was not aligned. The proposed two percentage point hike in VAT was by all accounts the key sticking point. It is, in retrospect, a critical lesson for life under a coalition government. The National Treasury can no longer assume the political process will usher through the budget with little resistance, especially a shift as dramatic as a large VAT hike. The VAT rate has been increased only once in democratic history — in 2018 when it was raised from 14% to 15%. It had been 14% since 1993, when it had been raised from the 10% created when VAT was introduced in 1991.

That jump in 1993 was met with major public protest, which resulted in widening the basket of zero-rated goods to include more basic foods. The 2018 change, under finance minister Malusi Gigaba, was a somewhat desperate effort to signal fiscal caution while government finances were rapidly spiralling out of control in the Zuma government. Again, the sting of the increase was somewhat offset by widening the list of zero-rated goods, this time to include other essential items such as sanitary pads.

VAT is obviously controversial because it is regressive — it hits the poor the hardest. The challenge the Treasury faces is that other taxes, particularly income tax and company tax, have run out of road — further increases simply drive behavioural responses by taxpayers who find ways to avoid it, principally by shifting economic activity to other countries where tax rates are lower. There are few options available to the Treasury to raise more revenue. By international standards, the current 15% VAT rate is middling, below European averages of 20%, but above Australia and South Korea’s 10%.

In line with the lessons of the last two VAT hikes, the Treasury was counting on placating protest by increasing the list of zero-rated goods to include meat and some other foodstuffs. It also aimed to increase social spending, including an increase to social grants significantly above inflation. It hoped, then, that the overall impact of the package would not be seen as regressive.

But the political costs of a VAT increase were clearly apparent to the politicians in the cabinet. And the resistance was unassailable.

The Treasury has set March 12 to table a new budget, and it will have to find some way to get the cabinet onside. According to reports, a cabinet meeting yesterday failed to do that. It appears a VAT hike is off the table and the cabinet is trying to find expenditure to cut and other taxes to increase. This will of course be tough, and the cabinet will now be stuck with the same challenges the Treasury has had to navigate. The cabinet will, though, be more sensitive to the fallout from VAT, though I wonder if a single percentage point hike won’t end up being the compromise.

So far we’ve not seen indications that the government will end up borrowing to cover a deficit. That is a good thing. The main reason for the Treasury’s dramatic proposal was to continue the path of stabilising debt levels and eventually regaining investment grade. That would reduce expenditure on interest, but more importantly reduce the cost of capital for the whole economy and smooth SA’s engagement with the global financial system. That would support growth, which must be the ultimate ambition.

Budgeting in an environment of stagnant growth is always going to be very hard. Whatever the cabinet does now, the key test of a budget is whether it enables a future of far easier budgeting by supporting growth.

• Stuart Theobald is chair of research-led consultancy Krutham.

This article first appeared in Business Day.

Image Credit: Finance minister Enoch Godongwana by GovernmentZA licensed under CC BY-ND 2.0.