Third time lucky for the budget?

5 May 2025 — Will the finance minister’s third attempt at a budget pass muster? What hidden perils lurk in the relationship between MTN, the ANC and Iran? How did the Trump presidency affect election outcomes in Canada and Australia? What’s the verdict after the first 100 days of Trump’s second presidency?

Third time lucky for the budget?

Finance minister Enoch Godongwana will present his third budget to South Africa on 21 May. With the proposed increase in the value-added tax (VAT) rate to 15.5% scrapped, National Treasury’s estimated revenue will fall short by R75 billion over the next three years.

A more realistic budget will restore some of the credibility that Mr Godongwana and the National Treasury have lost over the last three months. In the second version of the budget, presented on 12 March, Treasury forecast debt-to-GDP to stabilise at 76.2% this year before declining to 73% by 2030. This stands in stark contrast to the forecast by the International Monetary Fund (IMF), which projected South Africa’s debt-to-GDP to reach 88.7% by 2030. In the same budget, Treasury forecast GDP growth of 1.9% in 2025, while the IMF sees growth of only 1%.

In the context of large-scale disruptions to international trade and investment flows under the impact of Donald Trump’s policy shifts, South Africa’s short-to-medium term growth prospects are perilously close to flatlining. They will not be helped by a low-growth domestic environment in which the Government of National Unity has failed to deliver pro-growth reforms, instead doubling down on anti-growth legislation such as the Expropriation Act, the National Health Insurance Act, the Public Procurement Act and strict race-based targets under the Employment Equity Act. Without economic growth, Mr Godongwana’s task will only become more difficult.

South Africa’s Iran risk

The close three-way ties between the African National Congress (ANC), cellular company MTN and Iran could pose a significant risk to South Africa’s relationship with the United States (US). President Cyril Ramaphosa is a former chairman of MTN and has appointed Mcebisi Jonas, current chairman of MTN and former deputy minister of finance of South Africa, as special envoy to the US.

MTN has significant business interests in Iran. In court cases currently underway in the US and South Africa, it is alleged that MTN bribed Iranian officials, helped foreign terrorist organisations obtain US technologies, and promised to procure military equipment for Iran. Although these allegations are untested, the lawsuits mean that the company could be compelled to disclose sensitive internal information that would be potentially embarrassing to it and the ANC, including information touching on rumoured financial links between the ANC and Iran.

The ANC has frequently expressed its solidarity with Iran and Iranian-supported movements such as Hamas and Hezbollah, and regularly celebrates its fraternal links with all three entities. The US, meanwhile, considers Iran a state sponsor of international terrorism and has designated Hamas, Hezbollah and the Iranian Revolutionary Guard Corps as Foreign Terror Organisations. Should the court cases establish that there was indeed corruption or support for terrorist organisations in the relationship between MTN, the ANC and Iran, this would very likely lead to the US imposing sanctions on MTN, implicated ANC officials and potentially South Africa itself.

Anti-Trump sentiment boosts incumbents in Canada and Australia

Right-of-centre candidates were defeated in last week’s elections in Canada and Australia despite enjoying substantial leads in polling at the beginning of the year. In Canada, the incumbent centre-left Liberal Party, formerly led by Justin Trudeau and now by Mark Carney, will form a minority government after winning 168 seats in the House of Commons, short of the 172 needed for a majority. In Australia, the incumbent centre-left Labor Party under Anthony Albanese won a resounding victory, with projections at the time of writing giving him 85 of 151 seats in the lower house of Parliament.

Both elections were significantly influenced by the Trump presidency. In Canada, Mr Trump’s aggressive trade tariffs and provocative rhetoric about annexing Canada as a “51st state” sparked a surge in nationalism, which Mr Carney capitalised on by positioning himself as a defender of Canadian sovereignty. This eroded support for his main opponent, Pierre Poilievre, leader of the Conservative Party, whose populist stance echoed Trump’s, alienating voters wary of US influence.

Similarly, in Australia, Mr Trump’s global tariffs and erratic foreign policy, including a 10% tariff on Australian goods, shifted public sentiment. Polls showed 66% of Australians viewed the US as an unreliable security partner, and Mr Albanese’s criticism of Mr Trump’s tariffs as “not the act of a friend” resonated with voters.

These outcomes strain relations between the US and two of its most important allies. Mr Carney’s victory speech emphasised Canada’s need to diversify trade and security partnerships, implying a departure from deep US integration. In Australia, Mr Albanese’s win strengthens his hand to assert national interests, potentially reevaluating reliance on the US amid doubts about alliances like AUKUS.

As Canada and Australia commit to building trade relationships outside of the United States, South Africa can take advantage — assuming it can get its trade infrastructure and policy house in order. Both governments will likely engage actively with multilateral institutions such as the United Nations and G20, and will support many of the goals that South Africa puts forth as part of its G20 presidency.

Trump’s second first 100 days

In his second term, Donald Trump has had one of the most active first 100 days of any US president. With more executive orders issued than any other president, he has embarked on fulfilling a host of campaign promises. From slashing Diversity, Equity, and Inclusion (DEI) programs, to retaliating against opponents, to imposing huge import tariffs across the board, Mr Trump is fulfilling many campaign promises that some analysts assumed were just campaign rhetoric.

Mr Trump has been able to accomplish this thanks to his iron grip over the Republican Party. His electoral victory and force of personality have allowed his allies in the House and Senate to overcome the often fractious and rebellious nature of Republican Congressmen. As such, he has faced no real attempt by Congress to oppose or obstruct his policy program.

The major fault line in the new Republican Party will be between those who take the America First worldview to its nationalist extreme, versus others who interpret it as “America First; not America alone”, a sentiment recently expressed by Treasury Secretary, Scott Bessent.

The most consequential of Mr Trump’s early policy moves were enormous tariff increases, which have raised tariffs from historic lows to levels not seen in the US since the 1940s. With reciprocal tariffs of various levels set to resume on 9 July, the new US universal baseline tariff of 10% is set to remain. The attempt to rejig global trade has been accompanied by a strong push for the localisation of manufacturing, a policy objective that resembles the ANC’s own beneficiation, industrialisation and localisation preferences.

First-quarter GDP growth figures in the US were sent crashing down from an expected 2.3% growth to an actual 0.3% contraction in the wake of the tariffs and the uncertainty they generated. This could weaken Mr Trump’s control over the Republican Party as vulnerable Republicans distance themselves from Mr Trump as the midterm elections approach in 2026. To turn around the situation, Mr Trump will have to secure a host of significant trade deals with America’s biggest trading partners across the world to return economic growth to healthy levels.

US national debt, at over $34 trillion, will also be a persistent concern and possible curb on the reform plans of Mr Trump and his colleagues. Should the Republicans succeed in passing much-promised tax cuts but not manage to cut spending, the US deficit will only widen. Through Mr Trump’s first 100 days, US government spending was over $220 billion higher than during the same period in 2024.

While the South African and US governments both have spending problems, South Africa does not enjoy the exorbitant privilege of having a global reserve currency, a large tax base or a decisive, pro-growth administration. As economist Dawie Roodt warned last week, if South Africa does not get its spending and debt under control, it faces the risk of a bond market collapse, resulting in much higher interest rates, a weaker currency and severe economic disruption that rapidly impoverishes the entire population.