Post – 2025 Budget Analysis

The 2025 Budget, presented by Finance Minister Enoch Godongwana on 12 March 2025, comes at a critical juncture for South Africa. Initially postponed due to governance disagreements within the Government of National Unity (GNU), the budget seeks to strike a delicate balance between fiscal discipline, economic growth, and social protection.

While the government promotes it as a necessary step toward economic stability and infrastructure development, many South Africans remain wary. Increased taxes, rising living costs, and sluggish economic growth contribute to a mixed reception among the populace.

The global economy remains uncertain, with projected growth of 3.3%. However, geopolitical tensions and trade disruptions pose ongoing risks.

Though the Finance Minister did not address this issue directly, South Africa must navigate additional headwinds, including weakening trade relations with the U.S. and the uncertainties of a volatile global financial market.

• GDP growth is projected to increase to 1.9% in 2025, up from 0.8% in 2024.
• Inflation is expected to moderate at 4.3% in 2025.
• Unemployment remains high at 31.9%, necessitating urgent policy interventions to stimulate job creation.

• Budget deficit is expected to decline from 5.0% of GDP in 2024/25 to 3.5% by 2027/28.
• Government debt is projected to peak at 76.2% of GDP in 2025/26 before stabilising.
• Debt-service costs remain a concern, consuming 22 cents of every Rand in revenue.

• VAT increase by 0.5 percentage points in 2025/26 and another 0.5 percentage points in 2026/27, reaching 16%.
• No inflation adjustment for personal income tax brackets, raising R18 billion for the government.
• Corporate tax rate maintained at 27%, despite calls for a reduction to boost business competitiveness.
• Additional zero-rated VAT food items introduced to cushion low-income households.

• Infrastructure Investment: Over R1 trillion allocated, including:
  • R402 billion for transport and logistics.
  • R219.2 billion for energy infrastructure.
  • R156.3 billion for water and sanitation.
• Social Services: 61% of non-interest spending directed towards social services to support vulnerable populations.
• Public Sector Wage Bill: Increased by 5.5%, amounting to R23.4 billion. A voluntary early retirement initiative aims to reduce the workforce while introducing younger talent into the public sector.

• Revised debt relief now targets a final phase of R50 billion, reduced from R70 billion.
• Focus on enhancing financial sustainability through operational efficiencies and better revenue collection.
• Investment in alternative energy sources and infrastructure to stabilise electricity supply.

• R47 billion earmarked over the next three years for improving rail and port infrastructure.
• Government promoting Public-Private Partnerships (PPPs) to modernise operations and boost efficiency.
• Comprehensive restructuring plan aims to cut costs and improve governance.

• No additional bailouts will be provided, reinforcing a move toward financial self-sufficiency.
• Budget supports ongoing restructuring and potential private-sector partnerships.

• Denel: Receives R3.4 billion to support restructuring and maintain key defence operations.
• PRASA: Allocated R18 billion to upgrade commuter rail services and infrastructure.
• Broadband Infrastructure: R6 billion set aside to enhance broadband access through SOEs such as SENTECH and Broadband Infraco.

Minister in the Presidency, Khumbudzo Ntshavheni, stated that long-term proposals would not fill the immediate R60 billion gap in the budget. Accordingly, Finance Minister Godongwana made no mention of meaningful cuts in government expenditure. With South Africa’s BB- credit rating making borrowing costly, revenue increases through taxation may have reached their limit.

The ANC supports the budget, justifying the VAT increase as preferable to raising corporate taxes, which could impact employment and social grant dependency.

• Opposes tax increases, arguing the VAT hike disproportionately affects lower and middle-income households.
• Proposes a six-point alternative plan, including cutting wasteful expenditure, freezing non-essential public sector hiring, and incentivising private investment.
• Potential strain on GNU partnership with the ANC.

The 2025 Budget offers an opportunity for South Africa to stabilise its finances while investing in long-term growth. However, reliance on VAT hikes alone raises sustainability concerns. If the country’s situation improves, the government may reconsider the additional 0.5% VAT increase for 2026/27.

Governance reforms, fiscal discipline, and accountability are essential for effective public fund use. While infrastructure investment and social spending are positive, they must be paired with economic reforms to drive private-sector growth and job creation.

The success of the 2025 Budget hinges on execution. Government must efficiently implement infrastructure projects, strengthen SOE accountability, and foster sustainable economic growth. Without decisive structural reforms, South Africa risks prolonged stagnation, increased inequality, and public dissatisfaction.