The National Treasury has expressed confidence that both the National Assembly and the National Council of Provinces will approve the Division of Revenues Bill before the end of July 2025. It maintains that any disruptions resulting from the current delays in the budget process should remain limited if this timeline is met. It has stressed that maintaining fiscal stability during this period is critical to preserving investor confidence and sustaining public service delivery.
Key Takeaways
- Budget Bill Faces Critical Deadline: The National Treasury is confident the Division of Revenues Bill will pass by the end of July 2025. If it does not, South Africa faces major fiscal risks that could impact provincial and municipal service delivery.
- Temporary Relief Mechanism in Place: The current Division of Revenue Act allows for 45 percent of last year’s allocations to be transferred temporarily. However, this is only a short-term solution, with serious cash flow problems likely if the Bill is delayed further.
- Third Budget Secures Political Support: After two failed attempts, the third version of the fiscal framework passed with broad parliamentary backing. The Government of National Unity now faces the task of maintaining this momentum to avoid any further legislative delays.
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Potential Financial Threats If Process Slips Further
However, if the legislative process experiences any further delays beyond this point, South Africa could face substantial fiscal risks. Since the budget process has already encountered significant setbacks, the Division of Revenues Bill was not enacted prior to the start of the provincial financial year on 1 April. Furthermore, it appears unlikely that it will be passed before the commencement of the municipal financial year on 1 July 2025.
Failure to meet these key fiscal milestones could unsettle financial markets and add further strain to an already fragile economic outlook.
As a result of these delays, certain provisions within the Division of Revenue Act will come into effect. These allow for the partial transfer of funds from the national fiscus for the 2025/26 financial year, despite the Bill not yet being law. Specifically, the Act permits up to 45 percent of the previous financial year’s equitable share and conditional grants to be allocated to provinces and municipalities ahead of the Bill’s formal enactment. This mechanism acts as a fiscal safety net, but only provides temporary relief to cash-strapped provincial and municipal governments.
Treasury Provides Reassurances on Mitigation Efforts
In response to questions posed during a parliamentary session, the Treasury confirmed that, provided the Bill is approved before the close of July, the disruptions should be kept to a minimum. Provinces have been notified in advance about the delays, and they are expected to retable their budgets with minimal adjustments, aligned to the revised budget tabled on 21 May 2025. Treasury officials have been working closely with provincial finance departments to fast-track the necessary budget revisions, aiming to avoid any unnecessary service delivery interruptions.
The Treasury has warned that if the Bill is not passed before the end of July, the risks will escalate significantly. By that point, the initial 45 percent allocation from the 2024/25 fiscal year will be exhausted. Provinces would then encounter serious cash flow problems, which could severely impact their ability to maintain essential services. Critical sectors such as health and education, which rely heavily on national transfers, would be particularly vulnerable. Hospitals could face medicine shortages and staffing issues, while schools might struggle to cover basic operational costs, including teacher salaries and utility payments.
The Treasury also pointed out that municipalities would face similar risks, though on a slightly different timeline. Since the municipal financial year begins on 1 July 2025, their 45 percent allocation from the previous year will only start flowing from that date. Smaller and rural municipalities would face greater financial strain than their larger, more urban counterparts, as they depend more heavily on national funding to sustain their operations.
No Fourth Attempt at Budget Process
Following the tabling of the budget, it now rests with Parliament to take the process forward. The Treasury emphasised that it depends on the existing political and technical structures to consult around the budget and reach agreement within the Government of National Unity (GNU), enabling the budget to move forward successfully. Political analysts have warned that any renewed deadlock in Parliament could severely damage the credibility of the GNU and deepen public frustration with the current administration.
These consultations began late in the process, as earlier efforts to finalise the budget encountered setbacks. The first attempt was blocked by widespread opposition from various political parties due to the proposed two percentage point increase to VAT. The opposition was so strong that the original budget was never formally tabled. This sparked public outrage, with civil society groups and trade unions warning that ordinary citizens could not afford further tax increases amid rising living costs.
A revised second budget, which featured a smaller VAT increase of one percentage point phased over two years, was later introduced. However, it failed to gain support from the Democratic Alliance, the second largest party in the GNU. The African National Congress, as the largest party, then sought backing from minority parties such as Action SA and BOSA, who conditionally supported the budget on the understanding that the VAT increase would later be removed. However, no legal mechanism was in place to achieve this amendment. The political uncertainty around the VAT compromise deepened divisions within the GNU and further delayed the legislative process.
Third Budget Secures Parliamentary Support
This led to further political and legal wrangling. Ultimately, legal action by the Democratic Alliance resulted in the second budget being withdrawn, clearing the path for a third version without any VAT increases to be presented.
Prior to the tabling of the third budget on 21 May, Deputy Finance Minister David Masondo indicated that there would be no further attempts. He expressed confidence that this version would gain approval. His expectation proved correct when the third fiscal framework was endorsed by the National Assembly on 12 June. The approval marked a crucial victory for the GNU, bringing some much-needed political stability after months of budget-related turmoil.
Strong Backing Sets Positive Tone
The third framework, which lays out government’s economic policy, revenue forecasts and spending limits, passed comfortably with support from all GNU parties, including the Democratic Alliance. It was approved by 268 votes to 88, with two abstentions. This strong backing has set a more positive tone for the remainder of the budget process, which had previously been marred by political turmoil. Observers say that with the framework now in place, the focus must shift to swift implementation to avoid any further delays to critical funding allocations.
Treasury Will Continue to Support Parliamentary Process
The Treasury stated that it cannot predict the final outcomes of the parliamentary process. However, the Minister of Finance and Treasury officials will continue to provide analytical insights and briefings to parliamentary committees to assist the House in processing the remaining Bills within the required deadlines. Their aim is to ensure that the momentum achieved with the approval of the fiscal framework is maintained, allowing the Division of Revenues Bill to pass without further political roadblocks.
Conclusion
South Africa’s budget process has finally regained some political stability following months of uncertainty and failed budget attempts. However, the real test lies ahead, as the country races to pass the Division of Revenues Bill before the critical July deadline. Missing this window could severely disrupt funding for key services, particularly in health, education, and local government. Treasury officials are working closely with Parliament to ensure the process remains on track, but further delays could have significant consequences for both the economy and the public.
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