By Willem Oberholzer, Director, KISCH Tax Advisory
The 2025 Budget presented by South African Finance Minister, Enoch Godongwana, represents a pragmatic attempt to both steer the country through ongoing economic and fiscal challenges towards stability and growth, and balancing the political needs of the Government of National Unity whilst playing to the voting masses. Grounded in political realism, the budget outlines a carefully balanced strategy, placing equal emphasis on fiscal discipline, infrastructure development, social equity, and structural reform.
The projected GDP growth rate of 1.8% annually over the medium term indicates cautious optimism, despite persisting economic headwinds. What is helpful, is clear commitment to stabilise debt at approximately 76.2% of GDP by 2025/26 and maintain a primary budget surplus, which underscores prudent fiscal management. These measures aim to restore investor confidence, encourage sustainable economic growth, and mitigate external shocks.
A significant focus is placed on infrastructure, with over R1 trillion earmarked across the transportation, energy, and water sectors. The proposed reforms to streamline public-private partnerships (PPPs) signal an earnest effort to enhance private sector participation, boost productivity, and stimulate job creation. Nonetheless, the actual test will lie in effectively executing these ambitious plans, requiring robust governance and transparent oversight, while contending the B-BBEE legislation for all Government vendors.
Social spending reflects a commendable commitment to equitable growth and poverty alleviation. Increases in social grants, additional funding for healthcare, education, and municipal services, and extended social relief measures highlight the government's responsiveness to socioeconomic pressures faced by citizens. However, ensuring that allocated resources reach intended beneficiaries without dilution due to inefficiency or corruption remains an essential challenge.
The contentious decision to gradually increase the Value-Added Tax (VAT) rate to 16% by 2027 aims to raise necessary revenues without undermining investment or employment prospects that could result from higher corporate or personal income taxes. While strategically sound, this choice carries significant political and social implications, necessitating careful implementation to protect lower-income households through expanded VAT exemptions and direct relief measures.
Enhancing state capability through targeted reforms - such as auditing fictitious employees, rationalising public employment programs, and streamlining conditional grants - demonstrates a positive step toward greater government efficiency and accountability. Ongoing commitment to these measures is crucial for instilling confidence and effectively improving public service delivery.
