All eyes are on Finance Minister Enoch Godongwana as he prepares to present South Africa’s 2025/26 Budget on February 19, 2025.
With the country grappling with high unemployment and mounting debt, balancing the budget is increasingly difficult.
Revenue collections are expected to fall short by R22.3 billion, adding pressure, noted Nazrien Kader, Old Mutual Group head of tax. Geopolitical tensions, including trade risks from the US, further complicate the situation.
Recent improvements, such as easing inflation, interest rate cuts, better electricity supply, and government actions against corruption, have provided some relief, said Kader. SARS’ increased enforcement efforts also resulted in a notable revenue recovery, with R20.2 billion from tax and customs crime interventions.
Internationally, inflation is stabilising, and interest rates are expected to continue falling. The group’s chief economist, Johann Els, stated that the SARB is likely to reduce rates by another 25 basis points at the March MPC meeting, with the possibility of another cut in May. He believes this could support economic growth, which he projects may reach 2.2%.
The OECD projects global GDP growth of 3.3% in 2025. However, the US’s trade policies under President Trump pose potential risks for South Africa’s economy, particularly concerning the renewal of the Africa Growth and Opportunity Act, said Kader.
Locally, confidence in South Africa’s economy is improving, but actual GDP growth remains slow. The Reserve Bank projects 0.7% growth in 2024, with a slight increase to 1.8% in 2025.
The IMF was critical of South Africa’s restrictive business environment, recommending reforms to boost growth by 1.8%.
Kader stressed that president Ramaphosa’s infrastructure plans, including R940 billion in investment over three years, are central to the recovery strategy. However, the IMF urges more aggressive fiscal consolidation to manage rising public debt.
Despite a projected revenue shortfall, the Minister has increased the expenditure ceiling by R16.8 billion annually for 2025/26 and 2026/27, mainly due to SANRAL debt and public sector wage settlements.
Tax collections have shown a rise in individual income tax, but corporate income tax and VAT remain stagnant, leading to the revenue shortfall.
New taxes are unlikely, according to Kader, but adjustments to existing ones, like the possible reduction of medical aid tax credits, could occur. A potential BEE levy may fund a new Transformation Fund for black-owned and small businesses, she said.
South Africa’s grey-list status could delay its exit from the FATF, with full removal likely in late 2025. Meanwhile, SARS is improving its effectiveness through technology, data science, and AI.
“As an ‘armchair’ observer of the National Budget, I could be forgiven for describing minister Godongwana’s 2025/26 Budget as an extreme sport, not for the faint-hearted with its anticipated thrills and spills more inclined towards so-called ‘adrenalin junkies’ that feed off adventure of the fiscal kind.”
