How SA can (sort of) function if the budget is not passed

Up to 45% of the previous year’s expenditure will be authorised to cover critical government functions if the national budget is not passed for the new financial year.

This temporary measure will ensure that essential services such as healthcare, education, and public safety continue without a complete government shutdown, but funding for non-essential services and programmes will be affected.

This is according to Shadi Maganoe, a lecturer at the Wits law school, who said the Public Finance Management Act provided for interim expenditure under Section 29 of the Act. The ANC is now in an impasse with some of its government of national unity partners over tax increases, which were included in the proposed budget by finance minister Enoch Godongwana last month. The budget is yet to be passed. 

Maganoe said: “The law allows for up to 45% of the previous year’s budget to be used in the interim period. The allocation of these funds is typically done on a monthly basis, ensuring that critical government programmes can continue until a full budget is passed. This interim provision ensures the continuation of key services and prevents a funding gap.”

Godongwana’s plan to hike the VAT rate by 0.5 percentage points in May and by another half a percentage point by April next year has been met with staunch opposition from the DA and others, who have been resisting the VAT increase. 

While some political parties told Sowetan they would vote in support of the budget on Wednesday, the DA and ActionSA were demanding significant changes, particularly the removal of the controversial VAT hike.

“The impact [of the budget not being passed] would be significant, as the government’s ability to fund both existing programmes and new initiatives would be limited to the interim expenditure approved under Section 29,” Maganoe said. 

Administrative activities, such as those involving luxury government travel, especially overseas, may be cancelled or postponed, Maganoe said. In addition, new infrastructure projects, such as road construction that are not related to urgent repairs or expansions, could be delayed.  

“This amount [the 45%] is deemed sufficient to maintain essential services but is not intended to fund non-essential projects or new government initiatives,” she said. 

“However, this is not a long-term solution, and a proper budget must still be passed to ensure the continuity of government operations. If the deadlock continues, a short-term appropriations bill may be passed to provide funding for essential services until the budget is approved,” she said.

Maganoe said that during the first four months of the new financial year, expenditure is limited to 45% of the amount appropriated in the previous year’s budget. The government’s financial year ends on March 31 each year. 

After the first four months, the limit drops to 10% per month for each subsequent month until the budget is passed. 

“If parliament amends the budget, Section 77 of the constitution comes into play, which mandates that the budget as amended must still be passed by the National Assembly and approved by the president.

However, amendments are subject to certain limits: parliament cannot increase the total amount of expenditure beyond what is proposed by the executive. Changes must still align with the general fiscal framework and principles established in the medium-term budget policy statement and must fall within the approved fiscal limits.”

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