South Africa’s R16.7 billion hole

South Africa’s 2024 tax revenue will likely be lower than initially expected, with the government facing a shortfall of R16.7 billion.

This was revealed in the 2025 Budget, which Finance Minister Enoch Godongwana presented on Wednesday, 12 March.

The Budget revealed that gross tax revenue for 2024/25 is expected to be R1.85 trillion, R16.7 billion below the 2024 Budget projection.

Over the next three years, tax revenue is expected to increase from R2.01 trillion in 2025/26 to R2.31 trillion in 2027/28.

The average tax-to-GDP ratio is expected to reach 25.3% over the same period.

Tax policy measures proposed in the 2025 Budget will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.

“To meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration,” Godongwana said.

“It calls for macroeconomic stability supported by sound fiscal policy. For the deepening of structural reforms to remove the obstacles to growth and job creation.”

“And for scaling up infrastructure to unlock the productive capacity of the economy while building a capable state that supports all these efforts.”

He stressed that the Budget remains committed to a balanced fiscal strategy.

Godongwana also said that due to persistent spending pressures in health, education, transport and security, VAT will be increased by 0.5 percentage points in 2025/26 and by another 0.5 percentage points in the following year.

This will bring the VAT rate to 16% in 2026/27.

“After careful consideration, the government has decided to fund these. Deferring the funding of these sectors further would compromise the government’s ability to meet its constitutional obligations to the people,” Godongwana said.

This VAT increase, along with not adjusting the personal income tax brackets for inflation, will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.

Godongwana stressed that the decision to increase VAT, which caused the Budget to be postponed from February to March, was not taken lightly.

“No Minister of Finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power,” he said.

“We have, however, had to balance this knowledge against the very real and pressing service delivery needs that are vital to our developmental goals and which cannot be further postponed.”

Fortunately, he noted that a budget primary surplus of 0.5% of GDP will be achieved in 2024/25, which will grow to 0.9% in 2025/26.

Due to the Treasury’s fiscal consolidation efforts, the country achieved a primary surplus – therefore, excluding debt-servicing costs – for the first time in 15 years in 2023/24.

The minister previously stressed that this is crucial to the government’s goal of stabilising its debt, stressing that it is not a “pot of money”.

He also addressed the government’s debt problem, saying that it will stabilise at 76.2% of GDP in 2025/26, while the consolidated budget deficit will narrow to 3.5% by 2027/28.

As debt stabilises, a growing primary surplus will enable the government to reduce debt-service costs as a proportion of revenue, he said.

“Some of those savings will be used to build up fiscal buffers that we need as protection against future economic shocks.”

“Shocks like the Covid-19 pandemic and other uncertainties stemming from the rising geopolitical tensions and the global economic ramifications thereof,” he said.

Godongwana confirmed that debt-servicing costs will amount to R389.6 billion in the current financial year.

“This translates to 22 cents of every rand we raise in revenue. It is more than what we spend on health, the police and basic education,” he said.

“We must reverse this trend and prevent the cost of debt from taking away resources that could otherwise be spent on our pressing social needs or to invest in growth.”

“In this regard, our fiscal strategy stabilises debt service costs as a percentage of revenue in 2024/25 by maintaining a primary budget surplus.”