PRETORIA: The South African rand fell on Wednesday as disagreements in the ruling coalition persisted despite the finance minister scaling back the size of a contentious tax hike in a revised budget.
The budget has been the biggest test so far of South Africa’s fractious coalition politics, with political parties clashing over a plan to raise value-added tax.
The new budget delivered on Wednesday proposed raising VAT by 0.5 percentage point this year and another 0.5 percentage point next year, whereas an initial version shelved three weeks ago had put forward a 2-percentage-point increase this year.
Despite the smaller VAT hike, the second-biggest party in the coalition, the Democratic Alliance, said it did not support the budget and that it put the future of the coalition government at risk.
As well as the DA, the big parties outside the coalition also publicly oppose raising VAT, meaning the budget is unlikely to pass in the form presented on Wednesday.
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The biggest party in the coalition, the African National Congress, needs the support of at least one other large party in parliament to pass the budget.
At 1345 GMT, the rand traded at 18.42 against the dollar, down more than 1.1% on Tuesday’s closing level.
“The budget is seen as ‘kicking the can down the road’ if you will, offering little resolution and raising concerns about whether the government can secure consensus,” said Zain Vawda, market analyst at MarketPulse by OANDA. “This political uncertainty adds to the rand’s weakness.”
Casey Sprake, an investment analyst at Anchor Capital, noted the government had made no meaningful spending cuts compared with last month’s shelved budget.
“The conundrum facing South Africa at the moment is that our economy is simply not growing at a sustainable rate to support the growing expenditure required from the fiscal side,” she said.
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