Two things which are certain in the new 2025 Budget

Finance Minister Enoch Godongwana will re-table the 2025 Budget Review on 21 May 2025, following two previous attempts have failed.

The primary reason the previous budgets faced political and legal opposition was the planned increase in the value-added tax (VAT).

Most political parties opposed a VAT increase, arguing that it would harm the economy and disproportionately affect poorer households across South Africa.

Deputy Finance Minister, David Masondo, said he is confident that the third version of the 2025 Budget will be approved. He would not share additional information about the plans.

Efficient Group chief economist Dawie Roodt told Biznews that two things are certain about the new budget, set to be delivered on Wednesday.

1. There will be no VAT increase.
2. The DA would be on board with the new budget before Godongwana tables it.

Roodt said the main issue with the 2025 Budget is cutting state spending. “The state simply spends too much money,” he said.

A good example of overspending is the government’s wage bill. “It raises the question whether the DA will demand a reduction in the planned 5.5% public servant salary increase,” he said.

In the first two versions of the budget, Godongwana announced that civil servant salaries will increase by 5.5%, which Roodt said is far too high.

Another question is whether the DA would support plans to borrow more money and increase the already-high government debt.

“I cannot see how the state will significantly decrease spending, which will result in more borrowing. Whether the DA will go along with it is the question,” Roodt said.

“If the DA goes along with it, I will, as a commentator, make life very difficult for them,” Roodt added.

He argued that the only alternative for the Finance Minister is to reduce state spending, which is very difficult politically.

Roodt added that he wants Godongwana to resign as Finance Minister because he managed the 2025 budget so poorly.

Investec chief economist Annabel Bishop’s view

Investec chief economist Annabel Bishop expects Godongwana to give new projections in the 2025 Budget next week.

The new projects should include revenue, South Africa’s GDP growth, and determining appropriate borrowing strategies.

“While the risk is for higher borrowing projections as tax avenues are constrained, VAT increases were rejected, and significant income tax hikes are likely to follow the same path,” she said.

Corporate tax increases are not favoured either, given the detrimental impact on growth and employment.

“Customs and excise hikes are another tax on consumption, although moderate sin tax rises are tolerated and will occur.”

Bishop predicted that an increase in the fuel tax levy is likely to be used to cover part of the funding gap.

The National Treasury has also recognised the need to bolster tax collections at SARS and has increased the institution’s funding.

“Expanding the tax base increases tax buoyancy, with SARS having estimated it is owed R800 billion in unpaid taxes,” she said.

The finance minister also recently noted that SARS has identified 156,000 taxpayers who are not registered or have not filed returns, despite their substantial economic activity.

The good news is that the revenue service collected R9 billion more than expected last year, which will help alleviate the fiscal deficit.

The fiscal deficit was expected to be 4.6% of GDP and is now forecast at 4.5%. It is expected to decrease to 3.5% by 2028/29.

Godongwana noted the need to avoid a notable rise in borrowing projections, with 2025/6 likely at 76.4% of GDP. It is expected to stabilise after that.

Avoiding an adjustment for fiscal drag with no inflationary adjustment to medical tax credits, R19.5 billion of the estimated R28 billion shortfall would be raised.

The take from excise duties is estimated at an additional R1bn in March and may be slightly higher. 

Adjusting the fuel levy and not yielding a diesel refund would provide the rest, along with some cuts in expenditure.

Cutting expenditure is a prudent solution, as South Africa is struggling to fund its fiscal deficit,” she said.

Bishop said the state needs to consolidate its finances to improve fiscal sustainability and health. Borrowing increases would not be fiscally responsible.

South Africa’s GDP growth is expected to be much lower than initially anticipated. “The National Treasury forecast 1.9% in March, but will likely revise this down,” she said.

“With the National Treasury indicating that it plans a conservative and prudent budget, financial markets should not have a negative reaction.”