By the time you read this it may, or may not, be clear that we will be getting a budget speech on Wednesday  afternoon. The efforts to find a workable plan that navigates the red lines put down by parties across the government of national unity (GNU) are going to the wire.

The rabbit is stubbornly refusing to emerge from the hat. VAT is the main issue. The DA (and at times the ANC itself) are resolutely against any increase. But there are no other taxes that can make a material difference to government revenue. Sin taxes can be hiked, maybe some ad valorem taxes. The fuel levy was not hiked in the abandoned budget review in an effort to suppress fuel prices at a cost of R4bn, which can be reversed.

Bracket creep could wring some more from personal taxes. But company and personal taxes have reached their limits — further increases will just displace economic activity to other countries where taxes are lower. Overall, without higher VAT other tax increases will be small change.

So you are left with expenditure, debt or creative ideas about piggy banks you can raid. The big expense line that could be removed is the social relief of distress (SRD) grant that was created during the Covid lockdowns to provide a lifeline to those who lost their jobs and could not find new ones. It has proven difficult to withdraw, despite being consistently described as temporary.

In the budget review for the aborted budget, R35.2bn was earmarked to extend it for another year. That would go a long way to make up for the R58bn of additional revenue that the two percentage point VAT hike was intended to raise. However, abandoning this grant would be anathema to the left of the GNU, which has been pushing instead to make it a permanent grant to all unemployed adults.

Then there is raiding piggy banks. While they are seldom described as such, SA has two big sovereign wealth funds — the Gold & Foreign Exchange Contingency Reserve Account (GFECRA) and the Government Employees Pension Fund (GEPF). The GFECRA holds the profits the government earns from the country’s foreign reserves. This piggy bank was raided for the 2024 budget, with the government getting R150bn from it over the medium-term expenditure period. The SA Reserve Bank has retained a buffer of R250bn, which helps protect against potential losses on foreign reserves.

The GEPF is another piggy bank. Its assets are used to finance the pensions of retired civil servants. These are substantially a defined benefits scheme, so pensioners are guaranteed to get paid, irrespective of how the GEPF portfolio performs. Actuaries determine the future liabilities and the pool of assets is meant to cover those. According to the last valuation, the R1.15-trillion portfolio was estimated to cover 110% of future liabilities. The rules of the fund require this level to be above 90%. So, there is quite a bit of wiggle room there — the government could skip a year of contributions.

But, and it is a big “but”, the latest determination of liabilities is from 2021 (another was done in 2024, but results have not yet been published). And if contingency reserves are factored in the solvency level falls to 74%. Contingency reserves cover the risk of pensioners living longer than planned and investment returns being lower than forecast. They also cover the risk of pension benefits being hiked more than inflation. Funding levels have also been heading downward over the past three years.

Last year the GEPF received R59bn from the government. It could skip the payment this year and still leave the fund notionally with excess funding. But this could be just a disguised liability — several plausible scenarios would result in the government having to put this money back in in future. And public servants will not be impressed that their deductions are not flowing through to the fund and increasing their credit risk (even though it won’t affect benefits).

The last lever is debt, and this is one I hope will be avoided. Few appreciate the debt death spiral we were in five years ago when the full disaster of the Zuma presidency was being revealed. Our loss of investment grade credit rating in 2020 has been an immense cost to the whole economy. The National Treasury has been steadily rebuilding investor confidence that it has a hand on balancing the books. Regaining investment grade, which is possible in the next couple of years if discipline is maintained, would be a big stimulus to growth. And it is the lack of growth that is the fundamental problem for the budget.

So where will the budget come out? Some level of VAT could still be tabled, perhaps without the approval of the GNU, leaving it to parliament to vote through. A cut to the SDR could also be tabled, perhaps a termination of the grant within six months. We might see the GEPF being raided, at least through a reduced contribution of the employer’s component.

For any of those to happen we would need to see compromise somewhere. A day before the announcement there were no signs that compromise was happening.

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

This article first appeared in Business Day.