Minister Enoch Godongwana says the decision to increase Value Added Tax (VAT) “was not made lightly” as proposal also includes no inflationary adjustments for personal income tax brackets.&nbsp;



South Africa’s Finance Minister Enoch Godongwana delivered the country’s 2025 Budget Speech on Wednesday, March 12, following the initial postponement of the speech in February.



According to reports at the time, there was a dispute amongst the members of the Government of National Unity (GNU) over a proposed two percentage point VAT increase, which would have put further pressure on consumers.



In the newly-tabled budget, government has proposed to increase the VAT rate by half a percentage point in 2025/26; and by another half a percentage point the following year.



Government has also proposed no inflationary adjustments to personal income tax brackets, rebates and medical tax credits.&nbsp;



According to the minister, these measures are expected to raise R28 billion ($1.5 billion) in additional revenue in the 2025/2026 financial year and R14.5 billion ($791.5 million) in 2026/2027.



“This decision was not made 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,” Godongwana said in his speech.



“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.”



He goes on to explain that government weighed up the policy trade-offs, and touches on increases to corporate and personal income tax, as well as taking on additional debt but states that these measures were not feasible.



“VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us extend the social wage.”



Other notable points in the speech include the proposed expansion of the list of VAT zero-rated food items, no increase in the fuel levy for another year and the provision of social grant increases that are above inflation.



Speaking on the 2025 Budget, Lullu Krugel, PwC South Africa’s Chief Economist, said, in a statement, that, “Expanding the list of VAT zero-rated products has long been called for by private business and civil society as a way of supporting the financial situation of low-income households”.



“Today’s announcement to expand the basket of goods to include more meat and other products that are widely consumed in the lower expenditure deciles is welcomed with open arms in light of the impending VAT increases. It is now incumbent upon the producers and retail sector to ensure that these adjustments are passed onto the consumer.”



With an overall impression, Althea Soobyah, National Head of Tax, Forvis Mazars in South Africa, said, “One of the biggest issues with the budget every year is that South Africa is not investing in growth-enhancing initiatives with a significant proportion of the budget going to paying off debt and social grants”.&nbsp;



“South Africa urgently needs to look at other ways to increase revenue other than relying on the tax base.  At some point it will reach a saturation point. Growth enhancing structural reforms which support small and medium sized businesses will help to address unemployment and grow the tax base. One of the ways to increase the tax base is to grow the employment rate,” she adds in the statement.

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The country’s parliament announced, on the day that the Budget Speech was expected to be delivered, that it would be postponed until a later date, reportedly over concerns within the GNU about a proposed 2% increase in VAT, among others.



For the first time in its democratic history, South Africa has postponed its 2025 Budget Speech to March 12, after it was initially expected to be delivered on February 19.



This was after reports of an emergency cabinet meeting, called by President Cyril Ramaphosa, earlier on Wednesday following concerns by members of the executive committee, which included a proposed 2% increase in Value Added Tax (VAT). It would have taken the country’s VAT to 17% from the current 15%.



National Assembly speaker, Thoko Didiza announced to parliament that an agreement could not be reached regarding these proposals. &nbsp;



“Cabinet decided not to come and do a presentation of the budget and allow themselves enough time to relook at the budget and come back to this house in March, at a time at which they will inform us,” she said.



Finance Minister, Enoch Godongwana later briefed the media on the postponement announcement, where the new date was announced.



“Cabinet is united in the view that the budget must strike a balance between the interest of the public, economic growth and fiscal sustainability,” he said.



Political party leaders in the country have each offered their view with the Economic Freedom Fighters’ Julius Malema stating that “this is unprecedented”.



“This is not a practice we want to set for this parliament. It is going to be your legacy that, during your tenure, that parliament could not debate and adopt a budget. You are denying this body an opportunity to receive a budget, debate it, accept it or reject it,” Malema added in parliament.



The Democratic Alliance&#8217;s (DA) John Steenhuisen later said, “There were some concerns around some of the proposals in the current budget that members of the GNU felt were not in-line with the growth agenda in South Africa”.



“What we want to do is come back with a budget that will give South Africans hope that there is now a big move forward under the Government of National Unity to fix the economy, create jobs and ensure that we can combat the high cost of living.”

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South Africa’s 2025 Budget Postponed Until March 12

Amid economic challenges, the country&#8217;s latest budget speech draws critical analysis from economist Dawie Roodt, shedding light on the fiscal strategies&#8217; impact on economic growth and the path ahead for the nation.



In an era marked by economic turbulence, South Africa&#8217;s fiscal policy comes under scrutiny following the recent budget speech, aimed at addressing the nation&#8217;s pressing economic challenges. The speech was presented by Finance Minister Enoch Godongwana last week. Dawie Roodt, a renowned economist and Director of the Efficient Group, offers a candid assessment of the outlined fiscal measures and their potential trajectory for South Africa&#8217;s economy.



According to Minister Godongwana, the 2024 budget implements strategic expenditure cuts, aimed at achieving fiscal stability and economic resilience. Specifically, it targets a reduction in non-interest expenditure by ZAR80.6 billion ($4.19 billion) over the medium term, as part of a comprehensive fiscal consolidation strategy.



This measure is complemented by revenue adjustments, which have been revised upwards by ZAR45.6 billion ($2.3 billion) over the same period, compared to the 2023 Medium Term Budget Policy Statement projections.



Additionally, the budget proposes a reform of the Gold and Foreign Exchange Contingency Reserve Account. These adjustments are integral to the government&#8217;s efforts to manage the budget deficit and national debt, reflecting a focused approach to fiscal management in response to current economic challenges.



Despite these state efforts to manage the deficit, Roodt critiques the sustainability of the fiscal account, warning of a looming financial crisis if the current borrowing trend continues in the face of a weak economy.



“The fiscal actions are part of the reason why the economy is not growing,” he says to FORBES AFRICA.



“The fiscal account has become unsustainable, and we are heading for a financial crisis,” Roodt adds, emphasizing the urgent need for a shift in fiscal strategy.



Highlighting state inefficiencies, Roodt points out that despite significant spending, outcomes, especially in education, are dismal.



“We spend a lot of money on education&#8230;but the outcome of education is horrible. The primary focus must be on the improvement of the efficiency of the state,” he says.



On healthcare, Roodt is skeptical about the implementation of significant spending towards health, including the National Health Insurance (NHI), citing financial constraints and efficiency issues.



“It&#8217;s simply going to cost too much money. We ran out of money already; and the government simply is not efficient enough to implement this.”



To combat the FATF greylisting, the government has allocated ZAR628 million ($32.7 million) towards implementing the FATF and State Capture Commission recommendations, totaling ZAR2.3 billion ($119 million) dedicated to these efforts. This budget allocation is part of a broader strategy to address the greylisting by enhancing legal and regulatory frameworks to meet international standards on anti-money laundering (AML) and combating the financing of terrorism (CFT).



Roodt, however, remains skeptical, describing the difficulties presented by the FATF greylisting, especially in the financial services industry, and the broader negative effects on South Africa&#8217;s international business relations.



Addressing social grants and public employment as mechanisms to mitigate poverty and unemployment, Roodt argues these measures are unsustainable without economic growth.



“This is totally unsustainable. You need economic growth. You&#8217;re not going to create jobs or mitigate poverty by spending more money on people,” he advises, calling for policies that truly stimulate economic growth.



The 2024 budget speech, amidst South Africa&#8217;s economic challenges, reflects a critical juncture in the country&#8217;s fiscal management. The government faces the dual task of stimulating economic growth while managing its debt and deficit.



Roodt&#8217;s analysis underscores the importance of efficiency and targeted spending, particularly in education and healthcare, to navigate the path toward sustainable development.



As South Africa addresses international concerns such as the FATF greylisting, the emphasis on reform and compliance highlights the broader effort to secure economic stability. The road ahead requires a balanced approach, integrating fiscal responsibility with strategic investments to foster a resilient and inclusive economy.

Tag: Budget Speech

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