What you need to know about South Africa’s new Budget

[Nat Quinn]

Below are the highlights of South Africa’s 2025 budget announced by Finance Minister Enoch Godongwana in Cape Town on Wednesday.

Many of the proposals – including those on infrastructure investment and state power utility Eskom – are unchanged from the plan that was scrapped last month after a disagreement within the coalition government over a proposed value-added tax increase.

Taxes

• The National Treasury will hike the VAT for the first time since 2018 to raise an additional R42.5 billion over the next two fiscal years. The increase will fund key public services such as education, health and commuter rail. The rate will be lifted by 0.5 percentage points on May 1 and another half point on April 1, 2026, to reach 16%.

• To ease the impact on poor households, above-inflation increases in welfare grants will be implemented, more food items will be exempted from VAT and the fuel levy will be left unchanged.

Infrastructure Investment

• Over the next three years, R1.03 trillion will be allocated to public infrastructure including roads, energy, water and sanitation. The budget adds R46.7 billion to infrastructure plans over the medium-term.

• An agreement to create a single structure overseen by the Treasury to coordinate state participation in project preparation and planning, public-private partnership funding and credit guarantees will be signed this year.

• A performance-based grant will be made available to reward local government entities that supply services such as water and sanitation for improving their institutional capability, financial sustainability and operational performance.

Forecasts

• The consolidated budget shortfall is forecast at 5% of gross domestic product for the current fiscal year through March, unchanged from October.

• The shortfall is seen at 4.6% in 2025-26, narrowing to 3.8% in 2026-27 and 3.5% by 2027-28.

• Spending of R2.59 trillion is projected for 2025-26. Revenue collection is seen at 2.22 trillion.

• The Treasury expects a primary budget surplus – where revenue exceeds non-interest spending – of 0.5% of GDP in the current year through March and 0.9% of GDP in 2025-26. That ratio increases to 1.6% and 2% over the following two years.

Debt

• Over the next year, the Treasury expects to reach two milestones in rebuilding public finances. It foresees public debt peaking in 2025-26 at 76.2% of GDP because of the growing primary surplus. It also anticipates debt-service costs, which consume 22% of revenue, to peak at 21.7% in 2024-25 before easing.

• The gross borrowing requirement for the current fiscal year is seen at R415.7 billion. That compares with R424.7 billion envisaged in October.

• The borrowing requirement is expected to grow to R582 billion in 2025-26, including payments to Eskom of R80.2 billion. It is seen falling to R441 billion the following year, and then climbing to R600 billion in 2027-28.

• A credit guarantee vehicle is being prepared to mobilise private capital by de-risking critical projects in the energy, transport and water sectors. The arrangement is projected to have initial capital of $500 million.

• Eskom’s final R70 billion debt takeover will be replaced with a R40 billion advance in 2025-26 to redeem loans maturing in April 2026 and R10 billion in 2028-29 for debt maturing in May 2028.

• While a debt-stabilising primary surplus will anchor fiscal policy over the rest of the decade, the government has initiated discussions on potential longer-term fiscal anchors.

Growth

• Economic growth is seen averaging 1.8% over the next three years, the same as projected in October. Logistical challenges, including the nation’s under-performing railways and pots, remain a constraint on output.

Revenue

• Godongwana told reporters that the South African Revenue Service would receive an allocation of R4 billion, in addition to the R3.5 billion that had been set aside for the agency over the next three years. He didn’t provide further details.

Spending

• Total consolidated government spending is expected to grow at an average annual rate of 5.6% to 2.83 trillion in 2027-28 from R2.4 trillion in the year through March 2025.

• New allocations include:

  • R46.7 billion for infrastructure investments

  • R35.2 billion to extend the Covid-19 social relief of distress grant until March 2026

  • R23.4 billion to cover the costs of a three-year pay agreement reached with state employees

  • R8.2 billion to increase welfare grants by more than inflation

  • R5 billion to fund a peacekeeping mission in the Democratic Republic of Congo

source:What you need to know about South Africa’s new Budget – Daily Investor

Calendar Year	2025	2026	2027
GDP growth (%)	1.9	1.7	1.9
October forecast (**)	(1.7)	(1.7)	(1.9)
CPI average (%)	4.3	4.6	4.4
	(4.4)	(4.5)	(4.5)
Current-account gap (% of GDP)	-2.3	-2.4	-2.6
	(-2.1)	(-2.2)	(-2.5)
Household spending growth (%)	1.9	1.5	1.7
	(1.8)	(1.7)	(1.9)
Government spending growth (%)	3.8	-0.1	0.3
	(0.9)	(-0.4)	(-0.1)
Export growth (%)	3.4	3.2	3.1
	(3.1)	(3.1)	(3.1)
Import growth (%)	5.7	3.1	2.7
	(4.1)	(2.8)	(3.0)

(**) Numbers in double brackets show Treasury’s October forecasts

Source: National Treasury

Fiscal Year	2024-25	2025-26	2026-27	2027-28
Consolidated budget balance (% of GDP)	-5.0	-4.6	-3.8	-3.5
February draft budget estimate (*)	(-5.0)	(-4.4)	(-3.8)	(-3.4)
October forecast ((**))	((-5.0))	((-4.3))	((-3.6))	((-3.2))
Revenue (trillion rand)	2.029	2.222	2.377	2.520
	(2.027)	(2.248)	(2.390)	(2.534)
	((2.022))	((2.167))	((2.314))	((2.472))
Expenditure (trillion rand)	2.404	2.592	2.703	2.835
	(2.404)	(2.601)	(2.713)	(2.845)
	((2.395))	((2.510))	((2.624))	((2.767))
Government gross borrowing (billion rand)	415.7	582	441	600
	(418.3)	(564.4)	(438.7)	(596.6)
	((424.7))	((602.7))	((455.0))	((614.9))
Gross debt (% of GDP)	76.1	76.2	75.9	75.1
	(76.0)	(76.1)	(75.7)	(74.8)
	((74.7))	((75.5))	((75.3))	((75.0))
Net debt (% of GDP)	73.1	74.6	74.4	73.9
	(73.1)	(74.3)	(74.1)	(73.5)
	((72.6))	((74.3))	((74.2))	((73.8))

* Numbers in brackets show February 2025 draft budget forecasts

** Numbers in brackets show the Treasury’s October forecasts

Source: National Treasury

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