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Unpacking South Africa’s 2025 budget speech — challenges, dynamics and implications

16 Mar 2025

SA’s economic future hangs in the balance — VAT hikes, modest growth projections and a precarious parliamentary vote. What does this mean for the country’s financial destiny?

After an unexpected delay, South Africa’s 2025 budget speech finally landed last Wednesday, 12 March, sparking intense discussions about its implications for the country’s economy, citizens, and businesses. In a Daily Maverick webinar hosted by Business Maverick editor Neesa Moodley, Business Maverick editor-at-large Tim Cohen and senior journalist Rebecca Davis delved into the intricacies of this pivotal Budget and the key takeaways.

https://www.youtube.com/watch?v=B2VzWG7_AUs&t=10s

Budget process

To understand the Budget’s potential impact, it’s essential to consider the budget process. Davis outlined the procedural journey of the Budget in South Africa. Once tabled in Parliament, it is reviewed by various portfolio committees before being voted on by the National Assembly, typically over a two-month period. This year’s timeline projects a final vote by May. However, political uncertainty has cast doubt on whether it can be legally passed within this framework.

Davis explained: “The Budget gets tabled (and then) it moves to the parliamentary committees. Each portfolio discusses the elements of the Budget that pertain to their department, and then it returns to the National Assembly for a vote. This normally takes place over quite a protracted period… How this is going to be impacted now by the situation of complete uncertainty about whether the Budget can be legally passed remains to be seen.”

A key reason for the uncertainty is the fact that no sooner had Finance Minister Enoch Godongwana begun reading his annual budget speech than Democratic Alliance leader John Steenhuisen posted on X: “We will not accept the Budget in its current form.”

Cohen, however, highlighted a critical distinction between South Africa and countries such as the United States. While the US government can face government shutdowns due to a Budget impasse, the South African Treasury has already indicated that sufficient funds are available to sustain operations for several months, or even a year.

Nonetheless, unresolved issues — such as sin tax increases scheduled for later this month, but not yet approved — add an element of unpredictability. Cigarette manufacturers, such as British American Tobacco, however, have already put their prices up, effective from Monday, 17 March.

Read more: Sin taxes — feeling good has never hit your pocket this badly

Voting dynamics

This unpredictability is also reflected in the voting dynamics in Parliament, where the balance of power is precarious. Opposition parties include the Democratic Alliance (DA), the MK party, ActionSA, the Freedom Front Plus, the Economic Freedom Fighters (EFF) and smaller parties. The African National Congress (ANC), the Patriotic Alliance (PA) and the Inkatha Freedom Party (IFP) are the main parties in favour of the Budget with around 196 votes. This means that to pass the Budget, the ANC needs to secure at least five additional votes.

Davis noted: “Where it stands is tight, but the balance is in favour of (votes) against this Budget... So, this is pretty much all the big parties other than the ANC.” She said opposition parties appear increasingly unified in their stance against the Budget: “There’s a lot of politicking happening around this… there was sort of… a cascading effect where more and more parties just decided they were to take against this Budget.”

Cohen pondered whether the political parties’ choices were driven by principle or self-interest. He cited the DA’s decision to vote against the Budget as an example, noting that its stance seems motivated by calls for greater fiscal discipline: “It depends quite a lot on whether you believe them and whether you support the idea of government saving more money.”

How does VAT affect you?

One of the 2025 Budget’s most contentious measures is its increase in VAT. Cohen explained that debates around VAT centre on its impact on ordinary citizens, particularly those in lower-income brackets.

Economists generally consider VAT regressive because:

Lower-income people spend a larger proportion of their income on consumption, making them more vulnerable to VAT increases.

Higher-income people tend to save and invest more, reducing the share of their income affected by VAT.

However, some argue that VAT’s impact is not entirely regressive:

Wealthier individuals consume more luxury goods, which are also subject to VAT.

Revenue from VAT can be used to fund social programmes and services that benefit lower-income households.

Cohen acknowledged these complexities: “VAT increases disproportionately affect those who spend more on basic goods — but at the same time, wealthier individuals contribute significantly through luxury consumption.”

Growth and unemployment

South Africa’s economic growth projections remain modest at best. The country’s growth is estimated to reach 0.9% for 2025, while the Budget assumes an optimistic growth rate of 1.9% for 2026 — a figure Cohen described as “hopeful” but unlikely, given current trends.

Cohen said that introducing new taxes could further stifle growth.

Turning to the issue of unemployment, Davis highlighted R8.8-billion allocated for public employment programmes and R22-billion earmarked for job creation initiatives through the Unemployment Insurance Fund (UIF). However, she expressed concerns about UIF mismanagement: “The mention of UIF concerns me… we know it has problems.”

Meanwhile, labour costs remain a critical issue.

“The civil service wage bill is still a major issue… I wondered if the ANC would use the Government of National Unity (GNU) as a pretext to cut the wage bill, but that didn’t happen,” Davis said.

Read more: After the Bell: While the GNU cracks, labour relations in the public sector improve

Tax collection challenges

Building on this point, Moodley raised concerns about inefficiencies in tax collection and resource allocation: “It’s pointless throwing more money at SARS (the South African Revenue Services) to make tax collection more efficient if all the revenue that’s being collected is then misspent or looted… surely we’re not addressing the problem; we’re just increasing it.”

Budgeting for uncertainty

This issue of inefficiency is not isolated, and the three journalists identified several other areas of concern. These include excessive government spending on executive wage bills and perks, as well as inefficient allocation of resources, such as the Expanded Public Works Programme, which, despite its benefits, has been criticised for its ineffectiveness. Additionally, the costly implementation of the National Health Insurance and Basic Education Laws Amendment Acts has raised eyebrows, particularly given the country’s economic uncertainty, leading to questions about the timing and feasibility of these initiatives.

Finding balance

A key challenge is finding ways to address these financial pressures without placing an undue burden on taxpayers. To explore alternative solutions, Daily Maverick asked webinar participants where they would find an extra R28-billion instead of increasing VAT.

The response was clear: webinar viewers overwhelmingly favoured cutting government waste and inefficiency. The top choices included cutting government perks, which received 43% approval, reducing the bloated civil service wage bill (36%), selling off struggling SOEs (14%), more aggressively taxing the super-rich (6%) and (perhaps predictably), only 1% of viewers voted to increase sin taxes. DM

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