Finance Minister Enoch Godongwana.
In the new 2025 budget tabled on Wednesday, Finance Minister Enoch Godongwana trimmed additional spending allocations for front line services and social grants made in March to mitigate the revenue shortfall created by his about-turn on raising VAT.
Proposed additional spending over the medium-term has been reduced from R232.6 billion to R180.1 billion, the minister said, while the country’s gross borrowing requirement for the year has increased from R5.82 billion in March to R5.88 billion.
Although the departments of health, education, home affairs and defence will still see their budgets grow, the increases will be smaller. Grant increases that had been designed to shield recipients from the effect of VAT increases will now fall away.
So too will plans to give more money to disaster management services, and while the Passenger Rail Agency of South Africa had been due to receive an additional R19.2 billion over the medium term, this sum has been reduced to R12.3 billion.
Godongwana also revised his growth forecast downwards, citing greater domestic risks, an expected downturn in global trade growth amid tariff instability and slower expansion prospects in both advanced and developing economies, dampened by the weakened outlook in the United States.
“South Africa’s real GDP growth is now forecast to be 1.4% in 2025, compared with 1.9% projected in March 2025,” the finance minister said.
He said he expected growth to increase modestly to 1.6% in 2026 and 1.8% in 2027.
Demand from South Africa’s key trading partners was expected to grow by only 2.8% in the year, while heightened geopolitical risk has brought export commodity price assumption down to 5.4%.
Godongwana said these headwinds were “a vivid reminder that we must urgently turn the tide on our economic prospects and get our fiscal affairs in order”.
He had earlier this month dismissed suggestions that his unprecedented political difficulty in getting the annual budget passed would deter investors, saying sentiment would be informed by the treasury’s commitment to macroeconomic stability,
On Wednesday, he said the main message in his budget was that fiscal consolidation remained on course, with the deficit expected to narrow from 4.8% of GDP in 2025-26 to 3.4% in 2027-28. He added that S&P Global’s decision days ago to put South Africa’s credit rating on a positive outlook “amid this mess” was testament to the credibility of the treasury.
Plans to stabilise debt as a percentage of gross domestic product in the current year remain on track, but at 77.4% of GDP compared with the 76.2% predicted in March, as a result of weaker growth forecasts. Godongwana said this was “mainly due to lower nominal GDP”. The director-general of the treasury, Duncan Pieterse, noted that it was below the sum projected last year.
Debt service costs are expected to peak at 21.9% of main budget revenue..
At a media briefing shortly before he tabled the budget, Godongwana was asked whether he was losing the battle to rein in the debt to GDP ratio. He replied that he had played devil’s advocate with his treasury colleagues and asked whether one could say the goal posts had been shifted.
But the battle was also a political one, he said, and on that front he was confident that he was winning because an overwhelming majority of his cabinet colleagues now agreed that “we have a debt problem” and wanted it to be addressed.
Wednesday’s budget is Godongwana’s third attempt, after two earlier versions were undone by political dissent over his decision to raise VAT, initially by two percentage points immediately. The minister later trimmed that to one percentage point, staggered over two years, but ultimately caved and scrapped the increase altogether after the adoption of the fiscal framework was challenged in court.
That revised increase, plus a decision not to adjust personal income tax brackets for inflation, had been due to generate R28 billion in 2025-26 and R14.5 billion in 2026-27
The latest version includes no direct tax increases, as the minister promised in late April, but the treasury again opted not to adjust personal income tax brackets, and warned of tax increases in the new year.
Godongwana said he would propose additional tax measures to raise R20 billion in tax revenue next year.
But he also suggested these could be avoided, provided the state was able to effect savings of “tens of billions of rands” by implementing potential cuts identified in successive spending reviews or the performance of the South African Revenue Service (Sars) improved dramatically.
“If government achieves significant savings from implementing the recommendations of these reviews, it may mitigate the need for additional tax measures in the 2026 budget.”
The treasury noted that Sars collected R95 billion in debt in the past financial year.
The additional R7.5 billion it was allocated over the medium-term in the March budget — this figure has unchanged — is expected to help boost debt collection by R30 billion a year.
“The performance of Sars will be monitored by assessing the charge in the amount of cash collected from debt, which will be published monthly. If successful, the R20 billion in tax increases to be proposed in the 2026 budget will be reconsidered.”
The revenue collection forecast for the medium is now R61.9 billion less than the March estimate, as the weaker economic outlook was likely to mean less growth in key tax bases.
To help to compensate for the revenue shortfall created by the withdrawal of the VAT increase, the treasury is raising the fuel levy for the first time in four years. From 4 June, the levy on petrol and diesel will be R4.01 per litre and R3.85 respectively. This increase, and personal income tax bracket creep, will account for R18 billion in tax revenue in the current year.