Trump trips Ramaphosa - Budget 3.0 under strain as trade talks collapse and tariffs rise

President Ramaphosa’s meeting last week with US President Donald Trump was meant to focus on improving trade and diplomatic relations between the two countries. Instead, it turned into an ambush by Trump, engineered to advance “white genocide” conspiracy theory and supposedly rampant farm murders in South Africa.
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“Unfortunately, the media sideshow meant the intended outcome of trade negotiations was not achieved, and the impact of this on our country’s fiscus remains uncertain,” says Jordan Mulindi, Tax Attorney at Latita Africa.

Global economic woes ahead
It’s a fiscus that will inevitably face pressure from Trump’s tariffs on global markets and South Africa directly. This clearly emerged in Finance Minister Godongwana’s Budget Speech, delivered the same day.

“The most troubling changes are the global economic developments which have, in the short space of two months, already had a significant impact on the domestic economic outlook,” he said, referring to the US President’s tariff wars and higher interest rates.

South Africa, as he put it, is a small, open economy that depends on global trade and financial inflows.

Both international trade and investment yield taxable income, without which the government can only turn to local businesses and citizens for revenue.

A budget, finally
But this was Budget 3.0, as it has come to be known, with two failed attempts to pass behind it. Godongwana confirmed the much-protested VAT increase had been abandoned, after facing unrelenting dissent from opposition parties and GNU partners alike, as well as the public itself.

This would result in a tax revenue loss of R61.9 billion over the next three years, he said.

So what options were left to the Minister in terms of tax collection? Nothing more than an increase in the fuel levy - the first in three years - by 16 cents per litre for petrol and 15 cents per litre for diesel from 4th July.

“Make no mistake - its impact will be felt by fuel-dependent businesses, motorists and, ultimately, consumers at the till. Whether that proves as painful as a VAT increase remains to be seen,” says Mulindi.

With no other choice, the government again turns to its go-to solution - improved tax collection. The budget allocates R7.5 billion to SARS over the medium term to increase its debt collection effectiveness, which could raise an additional R20 to R50 billion per year.

It will also further modernise SARS’ operations, including targeting illicit trade in tobacco and other products that rob the country of customs, excise and VAT.

The Minister said he believed the investment could achieve at least R35 billion, enough to meet the fiscus’ R20 billion shortfall.

Can it work?
“If this move doesn’t pay off, it begs the question of whether or not a VAT increase could be on the cards next year and how it would be received by the public,” says Mulindi.

Minister Godongwana has certainly shown creativity in developing an optimistic budget, promising to increase non-interest expenditure by 5.4 percent over three years and the primary surplus from 0.8 percent of GDP to 2.1 percent in 2027/28, thereby dropping the deficit by R8 billion.

“Realistically, though, South Africans need to prepare for ever-harder economic times as tariffs start to bite and they come under more pressure from SARS to settle their taxes quickly,” says Mulindi.
 
ENDS


MEDIA CONTACT: Idéle Prinsloo, [email protected], 082 573 9219, www.atthatpoint.co.za 
 
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