New 2025 Budget Speech expectations

The National Treasury faces some tough decisions in the country’s upcoming Budget, but there are alternatives to its original plan for a 2 percentage point increase in value-added tax (VAT).

Investec’s top finance and economic experts recently shared their expectations for South Africa’s 2025 Budget, set to be tabled on 12 March.

The Budget was initially set to be tabled on 19 February, but it was delayed at short notice because members of the Government of National Unity (GNU) could not reach a consensus.

The DA revealed that the National Treasury’s original Budget proposed increasing VAT, which the party said would destroy South Africa’s economy and it could, therefore, not sign off on.

This is because VAT is among the few taxes that all South Africans pay, unlike personal income tax, where your income level determines whether and how much you contribute.

VAT also disproportionately affects the poor, who spend a higher percentage of their income on VAT-levied items than wealthy South Africans.

Therefore, the National Treasury has had to return to the drawing board to find alternative ways to raise the additional income the government needs to support and grow South Africa’s economy.

Investec experts Annabelle Bishop, Tertia Jacobs, and Chris Holdsworth shared their expectations prior to the postponement of the 2025 budget.

In terms of state-owned enterprises, they said Transnet’s crisis will be far more difficult to address than Eskom’s, but both require microeconomic solutions.

This includes better governance, management and clear risk-reward frameworks for private investment.

In addition, governance improvements have begun, but infrastructure funding remains a concern.

They said investors need to see real progress in infrastructure to believe in higher economic growth.

The experts highlighted crime, corruption and public-private partnerships as crucial factors in restoring efficiency.

From a fiscal perspective, they expected no major tax changes but rather minor adjustments to provide household relief.

In addition, they believe the social relief of distress grant will remain in place but warned that the long-term financing of this R350 grant is still uncertain.

Overall, the experts said South Africa needs 5% GDP growth to create meaningful employment, which could be achieved by enabling a pro-business environment.

New expectations

Following the postponement of the 2025 Budget, Investec updated some of its expectations for the 12 March presentation.

Investec chief economist Annabel Bishop said that Budget Take Two will focus on the GNU’s capacity to make the constructive fiscal decisions essential for South Africa’s economic stabilisation and growth.

Positively, she said the fiscal risk premium has stabilised, largely due to the National Treasury’s commitment to stabilising government debt while balancing any new spending with tax increases. 

“However, this approach is not conducive to fostering growth,” she said. “The reality is that there is no room for complacency; tough choices regarding the composition of government expenditure are imperative.” 

“Relying on tax increases to finance new spending is unsustainable in the long term.”

This was echoed by Investec Wealth and Investment’s chief investment strategist, Chris Holdsworth.

Holdsworth outlined four potential ways to plug the government revenue gap without raising VAT by two percentage points, from 15% to 17%.

He said the increase in VAT was expected to raise around R58bn in revenue to cover spending pressures over the medium term.

While it is unclear what alternative methods will be used, the four options Holdsworth outlined are listed below.

Adjustments to other taxes

Many experts have suggested not adjusting tax brackets for inflation, as has been done before, to raise additional revenue without explicitly raising taxes.

Some experts have also called on the government to introduce a wealth tax, which, unlike VAT, would affect wealthy South Africans rather than the poor.

However, this plan has also been criticised for its potential to encourage wealthy people to leave the country, taking their tax contributions with them.

Accessing the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) again

The National Treasury withdrew from the Reserve Bank’s GFECRA in 2024, which adds R150 billion in additional government income over three years.

This drawdown aimed to save approximately R30 billion in debt-servicing costs over three years and was expected to reduce the debt-to-GDP ratio, which was projected to peak at 75.3% in 2025/26.

However, continually tapping the GFECRA is not a long-term solution for the government’s fiscal crisis.

Reducing spending

The Bureau for Economic Research (BER) recently explained that the government’s initial 2025 Budget effectively shifted the burden of addressing the country’s fiscal crisis onto taxpayers rather than the government through lower spending.

While this may work in the short term, it is also not a long-term solution, as South Africa’s tax base is already small and overburdened.

The country has passed the “sweet spot” on the Laffer curve, and any significant tax increases will now likely impede revenue growth rather than increase it.

Therefore, the government could look to cut its expenditures, freeing up additional revenue, rather than attempting to increase its revenue through taxes.

Increasing debt issuance

While the government has the option of taking on more debt, this could be detrimental to the economy in the long term.

In his Medium-Term Budget Speech in November 2024, Finance Minister Enoch Godongwansa said the country’s gross debt is set to increase from R4.8 trillion in 2023/24 to R5.2 trillion in 2024/25.

In addition, debt service costs will increase from 20.7% of revenue in 2023/24 to 22.1% in 2026/27. He added that, in 2024 alone, the cost/interest on this debt will amount to roughly R385.9 billion.

This means that South Africa spends roughly R1 billion a day on servicing its debt. 

Over the Medium Term Expenditure Framework, which runs to 2026/27, these interest costs are expected to reach R1.3 trillion.

Therefore, taking on more debt, while an option, is not ideal for the economy in the long term.

“It is difficult to reduce spending, while it’s also difficult to increase taxes,” Holdsworth said. 

“GDP growth projections for 2025 were disappointing given better energy security and some improvements in logistics.” 

“Treasury expects 2024 GDP growth to come out at 0.8% driven by a weak third-quarter print.”

South Africa’s economy contracted in the third quarter of 2024, but fourth-quarter GDP data, released on 4 March 2025, revealed that it grew by a modest 0.6%.