Budget 2025: What to watch out for

Citizens of all walks of life and business as well as government departments and state-owned entities all have different hopes for Budget 2025 as everybody wants a bite of the revenue pie.

The minister of finance, Enoch Godongwana will tell citizens more about the size of the pie in his Budget 2025 speech on Wednesday afternoon. This will include revenue through various taxes less debt servicing costs.

Revenue shortfall

Isaac Matshego, Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say gross tax collections for fiscal year will slightly exceed the Medium Term Budget Policy Statement (MTBPS) estimate but remain below the 2024 Budget projection by more than R20 billion.

“Personal taxes have increased sharply, boosted by the two-pot retirement system withdrawals. At the same time, company taxes will likely beat October’s projections. However, VAT growth will probably fall short of the MTBPS’s estimate, contained by the faster-than-expected deceleration in inflation.”

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Government debt

Arthur Kamp, chief economist at Sanlam Investments, says Treasury is expected to show further improvements in the primary budget surplus and ultimately, a decrease in the government debt ratio over the medium term.

The MTBPS shows the debt ratio peaking at 75.5% of gross domestic product (GDP) in 2025/26 and decreasing to 75.0% of GDP in 2027/28.

However, Kamp says, the actual debt trajectory may be materially different from its projected path. “After all, there are many moving parts which influence the outcome, including changes in the trend of GDP growth and tax buoyancy, new expenditure priorities, changes in required transfers to state owned companies and the revaluation of inflation linked bonds and foreign currency bonds.”

Simultaneously, he warns, the persistently high unemployment rate and legislative changes, including the introduction of the NHI Act, imply risk to the expenditure outlook. “Real GDP growth must increase for a sustained period to reduce the unemployment rate. In the interim, a safety net is required.”

Kamp says in an uncertain environment, market participants want confirmation of Treasury’s commitment to the pursuit of a sustainable fiscal policy in Budget 2025. To this end, Treasury has been considering the merits of introducing some form of fiscal anchor, but an announcement on this is not expected in Budget 2025.

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How will the revenue be spent?

Then Godongwana will have to tell us how this money will be spent on:

Infrastructure spending

Kamp says the question is how South Africa’s large infrastructure needs will be funded. “In the absence of fixing infrastructure, economic growth cannot be lifted to the level required to return fiscal policy to a sustainable position while funding socio-economically critical spending.

“Treasury’s stated intention to show government borrowing for infrastructure spending, funded through the Budget, as a separate borrowing category, is a welcome development. Far better to borrow to buy assets and lift the long-term potential GDP growth rate, than to borrow for consumption.”

Will the SRD grant become BIG?

While there are rumours that government will turn the social relief of distress (SRD) grant into a basic income grant (NIG), economists do not believe it will happen this year, although they expect the SRD grant to continue for at least another year.

Social grant increases

Social Grants are increased every year and it is expected that this year will not be any different. These include old age pensions, child care grants and grants for disabled people.

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Public sector wages

Government recently announced a 5.5% salary increase for public servants and last year the minister announced an early retirement scheme for public servants. He will presumably provide an update on this, in Budget 2024, prof André Roux, economist at the Stellenbosch Business School, says.

Kamp points out that South Africa’s spending on civil servants’ pay is equal to 14% of GDP, one of the highest ratios in the world.

Bailouts for Eskom, Transnet, SABC and Post Office

Busisiwe Mavuso, CEO of Business Leadership South Africa, says the minister will have to set out how Treasury plans to deal with the financial challenges facing Transnet and Eskom. “Eskom still needs to fix its debt-burdened balance sheet, which is substantially compromised by municipalities that continue to grow their arrears.

“Transnet must invest in infrastructure, although much can be done with accelerated deals with the private sector, especially through concessions, saving the public purse. Other perennially failing state-owned entities (SOEs) like the Post Office and Denel are not worth more public bailouts.”

Government spending on fighting crime, health, education

This is what we pay taxes for and we want to see how Budget 2025 makes provision for spending on fighting crime and improving education, which includes funding National Student Financial Aid Scheme (Nsfas). Citizens also want to hear what the plan is with National Health Insurance (NHI).

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Budget 2025 must also show how government will increase revenue going forward

After telling us how government will spend our money, Godongwana must tell us how government will ensure revenue in the next year. This usually includes:

Sin taxes

Sin taxes increase every year on tobacco products, vapes and alcohol.

Personal income tax brackets

Kamp says the minister’s decision last year not to compensate for bracket creep in 2024/25 had an ongoing impact on taxpayers. Treasury estimated last year this would amount to an additional R19.3 billion in 2025/26 and R20.7 billion in 2026/27. Does this imply less likelihood of a repeat in the year ahead?

Wealth tax

With Sars and the National Treasury looking at high wealth individuals, there is a possibility that the budget speech will include a wealth tax.

VAT

Although there has been rumours that VAT will be increased to increase government revenue, economist do not believe this will happen. However, there has been calls for exempting more essential foods, such as chicken, from VAT to help low-income consumers. Treasury has not rule this out.

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How will government grow the economy?

Godongwana will also have to explain how government will ensure economic growth of 3% through investment.

Kamp says although Treasury appears to be on track to meet its revised revenue target for the current fiscal year, supported by strong growth in personal income tax, nominal GDP increased by just 4.1% in the year up until the third quarter of 2024.

“Accordingly, growth is now tracking significantly lower than Treasury’s projected average increase in nominal GDP of 6.5% from 2025/26 to 2027/28. Despite this, we expect the budget balances projected in Budget 2025 to track the MTBPS numbers reasonably closely in 2025/26, with the all-important main Budget primary surplus improving to 0.7% of GDP from 0.4% of GDP in 2024/25. “

Kamp says Treasury’s Budget 2025 is expected to project a fiscal path largely in keeping with the 2024 MTBPS, although there may be a need to adjust following developments locally and globally. 

“For instance, Treasury may need some additional spending on the wage bill, although this impact may be mitigated by managing headcount or through savings elsewhere. Similarly, spending on health may receive consideration if aid from the United States aid is permanently withdrawn.”