Minister Enoch Godongwan at the media briefing ahead of the national budget speech at Imbizo Media Centre on March 12, 2025 in Cape Town, South Africa. The budget speech provides an overview of the economy of the previous and current years, and also gives budget estimates for the next financial year. (Photo by Gallo Images/Brenton Geach) 
A 0.5% VAT increase, a marginally improved growth forecast, a narrowing fiscal deficit, and greater infrastructure spending are among the major highlights of the 2025/2026 budget, which passed on its second attempt within a month.
The significant revisions from the previously rejected budget — especially given the widespread political backlash against the initially proposed 2% VAT hike — reflect a notably restrained finance minister and represent a clearer instance of governance through consensus within South Africa’s Government of National Unity (GNU).
Although tensions remained high, evident from political jabs at the opposition Democratic Alliance (DA) during the ministerial press briefing, Finance Minister Enoch Godongwana portrayed the delay and subsequent passage of the budget positively, describing it as evidence of “a maturing and resilient democracy”.
However, shortly before 2pm, DA head and Minister of Agriculture, John Steenhuisen, posted on X: “The DA will not support the budget in its current form.”
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The scaled-back VAT increase of 0.5% annually over two years highlights the increased influence and negotiating leverage that political parties other than the ANC now hold within the GNU. Equally, it demonstrates a broader acknowledgement that urgent fiscal interventions remain necessary.
The elephant in the room – VAT
Godongwana’s controversial initial proposal of a 2% VAT hike, which blindsided GNU partners three weeks ago, has been significantly softened. The revised budget now introduces two smaller increases of 0.5% each, effective from 1 May 2025 and again from 1 April 2026. The National Treasury anticipates total revenue of about R449.5-billion this financial year.
For consumers, VAT at 15.5% translates into an estimated 0.43% increase in the real cost of goods. According to data from the Pietermaritzburg Economic Justice and Dignity Group’s Household Food Basket for February 2025, the average monthly household food basket currently stands at R5,313.22. A 0.43% price rise would minimally add approximately R22.85 to monthly grocery expenses, although the full inflationary impact remains uncertain.
Additional items have been zero-rated in an attempt to lessen the financial blow to lower-income households, with the Treasury identifying these goods — including canned vegetables, edible offal of sheep, poultry, and dairy liquid blends — as high-consumption items among the bottom four expenditure deciles.
However, the Treasury also explicitly notes that “zero-rating is a blunt tool to assist lower-income households, because there is no guarantee that there will be a reduction in prices”. Furthermore, not factored explicitly into the economic analysis is the potential longer-term burden on the healthcare system arising from increased consumption of low-nutritional, zero-rated products. While intended to provide short-term relief, this strategy risks creating unintended long-term health consequences, which may undermine the very economic relief it seeks to deliver.
Although the VAT increase remains a contentious political issue, the current incremental adjustments reflect a more nuanced and meaningful compromise within the GNU.
Addressing expenditure, the minister was notably cautious in justifying increases, stating carefully: “There are several pressures in health, education, transport, and security… After careful consideration, the government has decided to fund these.”
Growth — what growth?
Overall economic growth is projected at 1.9% for 2025, averaging about 1.8% annually for the subsequent three-year period. This modest projection indicates continued economic constraints, primarily due to persistent infrastructure deficits and electricity supply challenges.
Not only is the forecasted growth substantially lower than the International Monetary Fund’s global estimate of 3.3%, it also trails significantly behind comparable developing economies identified in the Treasury’s own documentation. For example, growth in countries like Nigeria (3.1%) and Brazil (3.7%) far exceeds South Africa’s forecast, placing the country last among key emerging market peers.
Given that the Treasury’s prior forecast of 1.6% for the 2024/2025 fiscal year resulted in an actual growth figure of only 0.8%, it remains highly plausible that the current predictions may again prove optimistic.
Deficit, debt, downturn
Debt servicing costs currently account for 22 cents of every rand of government expenditure, with the debt-to-GDP ratio at 76.2%. The Treasury projects that this figure will gradually decline in the coming years, though in real terms it remains substantial, representing R424.9-billion in annual costs.
More troublingly, total national government debt has continuously risen, accumulating an additional R3.47-trillion over the decade from 2013/2014 to 2023/2024. This trajectory is compounded by the fact that South Africa’s debt-servicing rate is nearly three times higher than the median of 84 other emerging market economies.
Given this stark reality, renegotiating debt-service costs could substantially free up fiscal resources, an objective implicitly acknowledged by the government. The National Treasury’s announcement of the establishment of an Africa Expert Panel — designed explicitly to address the continent’s debt crises — coincides with South Africa’s assumption of the G20 Presidency, signaling an opportunity for leadership in advocating for continental debt restructuring.
A passing grade, but room for improvement
In its revised form, the budget broadly aligns with the Treasury’s stated objectives, notably prioritising revenue increases, debt reduction, and infrastructure investments.
However, several critical areas remain under-addressed. The budget notably lacks meaningful increases in allocations to the South African Revenue Service (SARS), suggesting an inadequate commitment to enhancing revenue collection capabilities. Additionally, it falls short of detailing robust measures to safeguard South African trade interests within an increasingly complex and hostile geopolitical climate.
Critically, though, the revised 2025/2026 Budget achieved something the earlier draft did not — it was successfully tabled. This outcome demonstrates both political pragmatism and the GNU’s capacity for compromise, albeit fragile.
Whether this signals a lasting stability within the GNU or merely temporary political expediency will significantly influence South Africa’s future fiscal credibility and investment climate. DM