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When Finance Minister Enoch Godongwana delivers the Budget 2025 speech on Wednesday afternoon, many South Africans will be hoping that there will be a few surprises that will make it easier to live and work in the country.
What can we expect from the first Budget Speech under the new government of national unity (GNU) against the backdrop of persistent economic challenges and a constrained fiscal environment?
Maarten Ackerman, chief economist at Citadel, says despite the initial optimism following the formation of the GNU, South Africa’s economy remains constrained. “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 expects that fiscal consolidation will be a major focus, ensuring that the country’s debt to gross domestic product (GDP) levels stabilise over the next three years while managing expenses such as the public sector wage bill.
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Ackerman also warns that government must tread a fine line between maintaining essential spending and avoiding excessive reliance on borrowing.
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. Ackerman emphasises 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 we need 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.”
Given South Africa’s already high tax burden, Ackerman says significant tax hikes are unlikely, although government may explore alternative revenue measures, such as adjusting value-added tax (VAT) structures or revising tax policies affecting high-net-worth individuals which may include potential changes around Regulation 28, capital gains tax and dividend tax.
“With limited fiscal flexibility, this budget must focus on efficiency and curbing unnecessary expenditure while fostering an environment that supports sustainable economic growth.”
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Albert Botha, head of fixed income at Ashburton Investments, thinks the upcoming budget speech represents a pivotal moment for the country, offering clarity on government’s fiscal priorities and implementation strategies.
He says while the president’s State of the Nation Address (Sona) typically outlined the broader philosophical direction, the budget speech serves as a practical blueprint for addressing South Africa’s economic challenges.
“This year, three critical areas will dominate discussions: state-owned enterprises (SOEs), social and economic reforms and fiscal sustainability. SOEs remain a cornerstone of South Africa’s economic infrastructure but are frequently also a significant fiscal burden.
“In transport and logistics, Transnet’s semi-privatisation of ports and rail infrastructure remains a critical focus area and government must outline progress in attracting private investment and participation, while addressing inefficiencies that have hampered economic growth.”
Botha says municipalities add another layer of complexity, with many local governments grappling with unsustainable debt levels, operational inefficiencies and corruption. “The restructuring of municipal finances is essential to ensure service delivery and reduce reliance on bailouts from the national budget.”
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South Africa’s pressing need for economic growth underpins much of the anticipated budget discourse and Botha says National Treasury will likely emphasise initiatives aimed at regulatory reform, infrastructure investment and easing the cost of doing business to stimulate private-sector-led growth.
The future of the Social Relief of Distress (SRD) grant is another critical issue, he says. “Initially introduced as a temporary measure during the Covid-19 pandemic, its continuation or evolution into a more permanent form will have significant implications for both social welfare and fiscal sustainability.”
On the revenue side, Botha says he will be watching for any adjustments to personal income tax brackets or corporate tax rates. “While there is little room for significant tax hikes given South Africa’s already high tax burden, Treasury may explore measures to broaden the tax base or enhance compliance.”
The introduction or refinement of fiscal rules, such as expenditure ceilings or debt-to-GDP targets, could provide much-needed clarity on long-term fiscal sustainability, Botha says. “With public debt levels nearing 75% of GDP, anchoring fiscal policy within clear parameters will be essential to reassure both domestic and international investors.”
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Jee-A van der Linde, senior economist at Oxford Economics Africa, says their revised budget forecast assumes a wider shortfall over the medium term owing to rapidly rising debt-services costs and expectations of government overshooting spending targets.
While Treasury forecasts total expenditure growth of 4.9% between 2024/25 and 2027/28 and annual wage growth of 4.5% and debt-services costs to increase by 6.9% per year over the same period, Van der Linde expects that government will more than likely overshoot this target having increased its pay offer to public sector workers to 5.5% for 2025/26.
“Due to rising spending pressures, we expect a deteriorated budget deficit equal to -5.5% of GDP this year with a wider shortfall assumed over the forecast period.”
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