Finance Minister Enoch Godongwana presented highlights of his upcoming budget to colleagues two weeks ago, but skipped a crucial detail to stop it from leaking – triggering a major fallout in the nation’s coalition government.

Godongwana flagged plans to hike value-added tax, without saying it would raise the rate by two percentage points to 17%. That information, shared with the cabinet hours before the budget was set to be delivered on Wednesday, caused a backlash that forced its last-minute delay.

President Cyril Ramaphosa’s coalition partner, the Democratic Alliance (DA), and even some members of his African National Congress (ANC) balked at the increase, which would have curbed consumer spending and output in a nation reeling under a 32% unemployment rate and sluggish economic growth.

The National Treasury’s intention was to bolster revenue by R191-billion over three years, helping contain national debt and fund infrastructure projects. A walkback would set back Godongwana’s efforts to bolster government finances, given that he has very little room to manoeuvrer.

It was “disingenuous” to say cabinet members weren’t informed of the broad details of the Treasury’s plans, and it was standard practice to withhold some key information to prevent it from leaking, the minister said on Wednesday after postponing the budget until March 12. “We said this was the direction we are likely to take and everyone was in jitters.”

Some of the information the minister did disclose in advance to the cabinet made its way into the public domain, with the Johannesburg-based Sunday Times newspaper reporting that the government was planning to raise VAT by 1 percentage point, and Business Day revealing what the Treasury planned to do to mitigate the impact of the tax increase on the poor.

The issue came to a head after the extent of the hike was unveiled to the full cabinet at a stormy meeting shortly before Godongwana was due to deliver his speech. The delay was announced by parliament Speaker Thokozile Didiza, when it became apparent that insufficient consensus had been reached for the budget to pass.

The unprecedented postponement was announced eight hours after the budget documents were distributed to journalists under embargo. The Treasury later gave clearance to release the information, with the understanding that a revised document will be presented to lawmakers next month.

The furore rattled investors and weighed on South Africa’s currency and bonds.

The rand fell as much as 1% against the dollar in the immediate aftermath of the postponement, and closed 0.6% weaker on Wednesday at 18.5216. The currency retraced some of those losses on Thursday. The yield on 10-year government finished the day 8 basis points higher at 10.59%.

‘Significant concern’

Lobby group Business Unity South Africa said the delay was “a significant concern” and sent a negative message about the so-called government of national unity’s ability to collaborate effectively and fulfil its crucial role in determining how to allocate resources..

“It should have been apparent much earlier that the parties in the GNU were struggling to reach an agreement on the budget, and the postponement should have been announced sooner to avoid compromising the credibility of the National Treasury,” said Khulekani Mathe, the group’s chief executive officer.

The drama unfolded as South Africa prepared to host foreign ministers from the Group of 20 nations in Johannesburg. The meeting — scheduled for Thursday and Friday — is a precursor to a heads-of-state summit in November that Ramaphosa will use to lobby for efforts to curb the excessive debt burden of developing nations and a greater commitment to dealing with climate change.

Godongwana played down the risk of any damage to the country’s reputation before the G-20 gatherings, saying “these people that are going to be here, they’ve got their own problems.”

Alliance Tensions

The ANC and the DA and eight smaller rivals teamed up after last year’s elections failed to produce an outright majority. While they’ve also disagreed about education and health policy and the passage of a new land-expropriation law, they’ve downplayed suggestions that the government may collapse.

The budget delay “is ultimately a story of political, governance and process missteps overlayed on actually some great National Treasury policy making,” said Peter Attard Montalto and colleagues at advisory service Krutham, noting the underlying fiscal discipline of the plan. “We do not see GNU stability risk here from this wobble,” he said.

Ramaphosa reassured the public that the budget process and his administration remain on track.

“The government of national unity will in the coming days and week intensify our efforts to balance the imperatives that drive the fundamental growth objectives of this administration,” he said in a statement. “We are working as partners to ensure that the budget is one that works for individuals and investors alike.”