Finance minister, Enoch Godongwana will deliver South Africa’s 2025 National Budget Speech on 19 February 2025 against the backdrop of persistent economic challenges and a constrained fiscal environment, says Maarten Ackerman, chief economist at Citadel.

“The key theme for this year’s budget will likely be balancing expenditure and revenue in a low-growth environment, without the ability to significantly raise taxes or increase debt,” he said.

Izak Odendaal, investment strategist at Old Mutual Wealth said that South Africa is under greater pressure than ever to get its own fiscal and economic house in order given an uncertain geopolitical environment, and backdrop of higher global borrowing costs.

This is because president Donald Trump and South African-born billionaire Elon Musk have intensified their criticism of South Africa in response to the newly enacted Expropriation Act of 2024.

According to Ackerman, a major focus will be fiscal consolidation, ensuring that our debt to Gross Domestic Product (GDP) levels stabilise over the next three years while managing expenses such as the public sector wage bill.

Government must tread a fine line between maintaining essential spending and avoiding excessive reliance on borrowing, he said.

While the budget is not only focused on economic reform announcements, it can support growth by removing red tape and accelerating the implementation of existing policies, said Ackerman, adding that fast-tracking structural reforms, particularly in energy, transport and manufacturing will be critical to boosting business confidence and attracting global investment.

“The policy framework is in place; what’s needed now is decisive implementation. Streamlining regulations for private sector participation in infrastructure, easing licensing constraints, and providing targeted tax incentives will encourage investment and improve long-term economic stability,” he said.

Given South Africa’s already high tax burden, significant tax hikes are unlikely. However, the government may explore alternative revenue measures, such as adjusting Value-Added Tax (VAT) structures or revising tax policies affecting high-net-worth individuals. Ackerman highlights that this might include potential changes around Regulation 28, capital gains tax, and dividend tax as key areas to watch.

“With limited fiscal flexibility, this budget must focus on efficiency and curbing unnecessary expenditure while fostering an environment that supports sustainable economic growth,” Ackerman said.

Odendaal said that the government already spends 20 cents out of every tax rand on interest payments, a number that grows annually, leaving less money to spend elsewhere.

Worse, it became a self-fulfilling prophecy where markets questioned the government’s creditworthiness and charged it higher rates, compounding the interest burden and further reducing perceived creditworthiness.

The way out of this is credible fiscal consolidation (reduced borrowing) and growth-enhancing economic reforms. This week’s Budget Speech is likely to stick to this
message, which is very important, but delivery is what counts most.

Economic growth in South Africa has been poor: 1.9% in 2022, 0.6% in 2023, while 2024 will likely end up being less than 1%, said Odendaal.

“Disappointing growth leads to disappointing tax revenue collections. There is limited room for tax rate hikes, since the government already takes a large slice of national income.”

There will be the usual increases of sin taxes and probably the fuel levy, as well as a stealthy increase in personal income tax by not fully adjusting the
brackets for inflation.

“Changes to income tax and VAT rates are unlikely, though there were reports in the weekend papers of this being discussed. Higher tax rates might be inevitable in future if current fiscal consolidation efforts fail,” the strategist said.

He noted that spending pressures have been relentless, from social security to student funding to SOE bailouts. These pressures aren’t going away.

“One of the key things investors will look out for this week is whether there will be support for Transnet, which is struggling to meet interest payments on its R130 billion debt pile. Similarly, municipalities owe various utilities billions of rands,” he said.

“The best thing the government can do to stabilise its finances is to carefully prioritise spending. The zero-based budgeting approach, which was mooted several years ago but seemingly never implemented, would be a start,” said Odendaal.

“Secondly, the government must accelerate efforts to make it easier to do business and that can unlock private capital in infrastructure spending. The Budget Speech is likely to include more detail on these infrastructure initiatives, in particular.”

The strategist said that faster economic growth would boost tax revenues and lower borrowing needs. It would
also raise the denominator of debt-to-GDP ratios.

“It will take a few years, but we are grinding our way towards a stabilisation of the debt ratio. If so, the reward will be credit ratings upgrades, and a rerating in the bond market.”