Budget Speech 2025: “No Finance Minister Is Ever Happy To Increase Taxes”, Godongwana Amid VAT Hike
- Finance Minister Enoch Godogwana delivered the 2025 Budget Speech amid a contentious looming VAT increase
- Godongwana outlined the government's expenditure and funding models to promote and fast-track economic growth
- Contrary to the previous proposal which saw the multiparty government at loggerheads, an increase of 0.5% prevailed
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Tshepiso Mametela is a seasoned journalist and the Head of Current Affairs at Briefly News. He reported live from President Cyril Ramaphosa's inauguration and has written articles on politics, crime, courts, accidents, and topics including sports at The Herald and Opera News SA over several years.
CAPE TOWN — Finance Minister Enoch Godongwana finally delivered the 2025 Budget Speech at Parliament's Nieuwmeester marquee in Cape Town on Wednesday, 12 March.
The plans outlining the budget allocations came three weeks after the Budget's initial postponement on 19 February, due to a then impasse between National Unity Government (GNU) partners. At the time, the multiparty government could not agree regarding a proposed 2% value-added tax (VAT) increase.
VAT increase less than expected
The postponement was meant to give the Cabinet a chance to deliberate on the best ways to go about funding the budget within its planned expenditure.
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In acknowledgement of this during his address, Godongwana said it indicated a maturing democracy.
"The delay provoked unprecedented public debate about the country's difficult policy trade-offs. As much as it has been dominated by the proposed VAT increase, an even broader debate must be about economic growth for the majority's benefit," said Godongwana.
"The government is aware of the high food and fuel prices and rising electricity and transportation costs many households face.
"Hence, we're taking proactive steps to protect vulnerable households through providing above-inflation social grant increases, widening the basket of VAT zero-rated foods, and deferring the fuel levy for another year."
On the burning VAT question, amid speculation that it would be all but scrapped following Cabinet's contentious leaked proposal, Godongwana may have disappointed and vexed other quarters still, including angering political parties, when he cited a half-a-percentage point.
He said the move was necessitated by several persistent spending pressures, namely in health, education, transport and security. For the government to satisfy its service delivery mandate, the necessary funds had to be sourced.
"Putting off funding these sectors would compromise the government’s ability to meet its constitutional obligations. To raise the revenue needed, and after careful consideration, the state has proposed to increase the VAT by 0.5% in 2025/26, and by another 0.5% in 2026/27."
This will raise the VAT from 15% to 16%.
Additionally, the government proposed no inflationary adjustments to personal income tax brackets, rebates and medical tax credits. The measures will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.
"This decision was not made lightly. No Finance Minister is ever happy to increase taxes. We're aware that a lower overall tax burden can help to increase investment and job creation while unlocking household spending power.
We have, however, had to balance this knowledge against the urgent service delivery needs vital to our developmental goals and which cannot be postponed further," explained Godongwana.
He said the economy had stagnated for over the past 10 years. but said it needed to grow much faster and inclusively.
"In that time, GDP [gross domestic product] growth has averaged less than 2%, far below the required level. In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8 per cent.
"The Budget proposes a bold and pragmatic approach to achieving this formidable task," outlined Godongwana.
Highlighting some of the projections made nearly five months ago during the Medium-Term Budget Policy Statement (MTBPS), despite economists' wariness over SA's future, Godongwana said a budget primary surplus of 0.5% of GDP would be achieved in 2024/25.
"This will grow to 0.9% in 2025/26, and government debt will stabilise, at 76.2% of GDP in 2025/26, while the consolidated budget deficit will narrow, to 3.5% by 2027/28," he said.
"As debt stabilises, a growing primary surplus will allow the government to reduce debt-service costs as a proportion of revenue.
"Some of those savings will be used to build up fiscal buffers needed to protect against future economic shocks, including those from the rising geopolitical tensions and the global economic ramifications they present."
Highlighting state-owned enterprises, he said Eskom's debt relief arrangements were also effective and contributed to the improved fiscal position.
In July 2023, the National Treasury introduced a debt-relief arrangement through the Eskom Debt Relief Act, to bolster the utility's balance sheet for a stable power supply by enabling restructuring and investment in maintenance.
"Eskom is in a much better financial position than the state the utility found itself in in 2023. Consequently, the government has decided to simplify the final phase of the debt relief package."
He said as a result of these improvements, Treasury had decided to simplify the final phase of the debt relief package. The last R70 billion debt takeover will now be replaced with R40 billion in 2025/26 and R10 billion in 2028/29. This will translate to a saving of about R20 billion.
Treasury said over five years, the government would have provided Eskom with loans of about R230 billion to assist the utility in repaying its debt.
This is about R24bn less than projected at the outset, reducing the gross borrowing requirement. Under the original agreement, the debt relief provided to Eskom will be converted into government equity over time.
To foster a stable macroeconomic environment, spilling over into job creation, improving public services and reducing inequality, he said the government espoused maintaining macroeconomic stability, implementing structural reforms; improving state capability, and accelerating infrastructure investment.
He said infrastructure was a key pillar of the growth strategy.
"It is the bedrock for economic development, a key source of jobs, and an avenue to scale up service delivery. This budget reflects that understanding.
"Public infrastructure spending over the next three years will amount to more than R1 trillion [and] focus on transport and logistics (R402 billion), energy infrastructure (R219.2 billion), and water and sanitation (R156.3 billion).
"The South African National Roads Agency (SANRAL) will spend R100 billion over the medium term to maintain the national road network, with provincial roads departments resealing over 16,000 lane-kilometres of roads."
He noted the Passenger Rail Agency of South Africa (PRASA), which has seen railways and railway stations countrywide crumbling under the weight of vandalism and a lack of maintenance and repair through failed procurement, was on the path towards improving.
"To sustain this progress, we have provisionally allocated an additional R19.2 billion over the medium term for critical signalling upgrades," added Godongwana.
He said large-scale dam projects in the Western Cape and KwaZulu-Natal in the works would bulk up supply and safeguard SA's water security.
In terms of consolidated spending, Godongwana said the government planned on spending R2.4 trillion for 2025/26, which provinces would receive over a mid-term period, and increasing it to R2.83 trillion in the 2027/28 fiscal year.
As part of the Budget proceedings, Godongwana also introduced the Appropriation Bill — a supply or spending bill that authorises the expenditure of government funds, allowing the government to spend money after it has been approved by the legislature — and tabled the 2025 Division of Revenue Bill, which Parliament is expected to process in the following months.
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Source: Briefly News
