South Africa’s new 2025 Budget in a nutshell
Below are the highlights of South Africa’s third iteration of the 2025 budget announced by Finance Minister Enoch Godongwana in Cape Town on Wednesday.
This budget came after two previous versions were withdrawn because of disagreements within the governing coalition over taxes.
The key change is that it does include the widely rejected VAT hike. This is in line with the minister’s commitment to maintaining it at 15%.
The latest budget withdrew the VAT rate increases and zero-rating proposed in the March 2025 Budget Review.
The latest budget proposes a few tax measures to raise R18 billion in 2025/26 and provide R1 billion in tax relief in 2026/27.
No adjustment is made to personal income tax brackets and rebates, which means more tax will be collected through bracket creep.
There is an inflationary increase in the general fuel levy, which will raise petrol and diesel prices.
There are above-inflation increases in excise duties on alcohol and tobacco products, also known as sin taxes.
The National Treasury further projected economic growth of 1.4% in 2025, up from 0.6% in 2024. This reflects the weaker-than-expected GDP outcome in the second half of 2024.
There is also a deteriorating economic outlook in both the domestic and global environments, which has caused the lower GDP growth projection.
“The fiscal strategy remains on track so that the government spends less on debt-service costs and more on critical public services,” Godongwana said.
Total consolidated spending is expected to grow at an average annual rate of 5.4 per cent, from R2.4 trillion in 2024/25 to 2.81 trillion in 2027/28, with the lion’s share going to the social wage.
Significant reforms to state spending and the budget process are under consideration, including the implementation of savings identified from the spending reviews.
Taxes
The National Treasury plans to raise an additional R16.7 billion in the year through March 2026 by not adjusting personal income-tax brackets and rebates to take account of price growth.
Fuel levies will be hiked in line with the inflation rate, while there will be an inflation-beating increase in excise duties on alcohol and tobacco products.
Next year’s budget will propose measures to raise an additional R20 billion in taxes in 2026-27 if the South African Revenue Service cannot raise extra income through more efficient administration and increased tax compliance.
To assist in this endeavour, it will get an additional R4 billion over the next three years to supplement the R3.5 billion set aside in October. That will help strengthen capacity to bolster debt collection by R20 billion to R50 billion a year.
Infrastructure Investment
Over the next three years, R1.03 trillion will be allocated to public infrastructure, including roads, energy, water and sanitation. The budget adds R33.7 billion to infrastructure plans over the next three years, slightly lower than the R46.7 billion proposed in March.
By March 2026, the Treasury will establish a single structure to coordinate state participation in project preparation and planning, public-private partnership funding, and credit guarantees.
Growth
Economic growth was revised lower and is expected to average 1.6% over the next three years, compared with 1.8% in March, because of a weaker global economic growth outlook, trade frictions, increased uncertainty, and lower projected investment.
Forecasts
The consolidated budget shortfall is forecast at 4.8% of gross domestic product for the current fiscal year, slightly higher than the 4.6% of GDP forecast in March. It is expected to narrow to 3.4% in 2027-28.
Spending of R2.58 trillion is projected for 2025-26, marginally down from the R2.59 trillion forecast in March. Revenue collection is seen at R2.2 trillion.
Preliminary data shows the Treasury achieved a primary budget surplus – where revenue exceeds non-interest spending – for a second year in a row of 0.7% of GDP in the year through March 2025 and expects it to widen to 0.8% of GDP in 2025-26, enabling debt to stabilize.
Debt
Government debt is expected to stabilize at 77.4% of GDP in 2025-26 – a slightly higher level than 76.2% projected in March, mainly due to lower nominal GDP.
The gross borrowing requirement is projected at R588 billion in 2025-26. That’s marginally higher than the R582 billion projected in March. It is seen falling to R434.3 billion in 2026-27 and then climbing to R587.7 billion in 2027-28.
Domestic and foreign loan redemptions will increase from R171.7 billion this fiscal year to R301.3 billion in 2027-28. The bond-switch program will mitigate refinancing risks by spreading redemptions over time.
Spending
Consolidated spending was revised down by R69.4 billion over the next three years. The budget cuts are concentrated in provisional allocations, which are revised to R141.8 billion from R204.8 billion.
As a result, government spending is expected to grow at an average annual rate of 5.4% to R2.81 trillion in 2027-28 from R2.4 trillion in the year through March 2025.
Allocations to the early retirement program for public servants, Passenger Rail Agency of South Africa and frontline services — including education, health, home affairs and defense – were revised down.
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