“The public has had a front-row seat to the growing pains of a vibrant and committed democracy. This is a good thing,” said Enoch Godongwana on Wednesday after finally tabling the nation’s budget.
It hasn’t always felt like a good thing, as the finance minister’s initial two percentage point VAT proposal in February almost sank the government of national unity (GNU) in the vicious aftermath that ensued.
It also means that in the three months since the first budget was drawn up, South Africa’s growth – and prospects – have weakened, not least due to a dimmer outlook for world trade thanks to US President Donald Trump’s tariffs.
Still, political hatchets have mostly been buried. For one thing, the ANC’s largest partner in the GNU, the DA, is likely to back this budget version.
DA spokesperson on finance Mark Burke says the budget “is a workable outcome in the context of trying economic times. The DA was not prepared to get behind a budget that maintained unsustainable government expenditure on the back of raising VAT … but today’s version has gone some way to undo this”.
Without the deeply unpopular VAT increase, South Africa now faces a R61.9bn shortfall in estimated tax revenue over the next three years. It also must confront a much weaker economic outlook, where Treasury has cut South Africa’s GDP forecast to 1.4% this year, 1.6% in 2026 and 1.8% in 2027.
Closing the gap
Yet, as Ninety One bond analyst Adam Furlan points out – there is still a raft of effective tax increases. “We heard comments from [DA leader] John Steenhuisen prior to the budget that there’d be no additional tax measures, but that’s not what we’ve got,” he says.
For one thing there’s the higher fuel levy: an increase of 16c and 15c per litre of petrol and diesel, respectively. Medical aid deductions remain unchanged and haven’t been adjusted for inflation – and neither have salary tax brackets.
And it’s still not enough to close the gap, which is why Treasury is giving the South African Revenue Service (Sars) an extra R7.5bn to collect more taxes.
In an interview with eNCA’s Francis Herd, Sars commissioner Edward Kieswetter explained that Sars will now be able to go after outstanding revenue already due, which it hasn’t previously had the resources to collect.
To hear Kieswetter tell it, a R1bn investment has a multiplier of between 30 and 60 times; Sars, he says, is being conservative in estimating that its added cash will get it to collect R20bn more; no doubt magic to the ears of overtaxed South Africans.
While National Treasury has promised a tough spending review, this is hardly an austerity budget.
Spending on non-interest items will rise by an average 5.4% over three years, and of every rand government spends, 61c will go towards “the social wage” – in other words, free basic services like electricity, water, education, health care, affordable housing and the state’s massive, money-sucking social grants bill.
That and the expected lower GDP means government debt is now expected to stabilise at 77.4% of GDP in the 2025/26 financial year – higher than the 76% it had promised three months ago. In practical terms, of every rand collected, 22c is going to pay the interest on our debt, which works out to a horrifying R1.2bn a day.
“To win the battle against debt there must be a political acceptance within the system that it is a problem,” Godongwana told a press conference before the budget was tabled. The good news, he said, was that “the overwhelming majority in the cabinet now see debt as a major issue”.
Treasury director-general Duncan Pieterse was adamant that government hasn’t lost the debt battle. For starters, it isn’t issuing any new debt to raise money.
“It would have been better if the debt-to-GDP peak was the same as it was in March, but the reality is with the size of the GDP revision, that was never going to be the case,” he said.
Treasury has also committed to a primary surplus – where government’s revenue exceeds its spending, excluding interest payments on debt – of 2.1% by 2027/28 rather than the initial estimate of 0.8%.
These primary surpluses, says Furlan “are what you want to see as a bond investor”. It’s one reason the rand did almost nothing on Wednesday – trading at about R17.91/$.
Old Mutual’s Johann Els says he’s not fazed by the increase in debt at 77% of GDP.
“The reason why I’m not worried is because they did all the other stuff in terms of cutting expenditure and keeping the deficit ratio under control and lifting the primary surplus ratio. I actually think this was credible and market friendly and better than the market had been expecting given all the uncertainty.”
‘Our own little Doge’
For Citi’s Gina Schoeman, it’s a “vanilla” budget – “they took away all the contentious stuff so they could table it and pass it”.
But, she says, “their growth forecasts have downside risks and are prone to leave a bigger revenue gap”.
Economist Dawie Roodt agrees. “The growth forecast is more realistic, but still too optimistic. And the so-called consolidation of debt has been kicked down the road again – as always – and it’s unlikely that debt will stabilise at 77% with growth what it is, and this is going to bite us sometime.”
Roodt is deeply worried about the fact that government remains seemingly unable and unwilling to get a grasp on its public sector wage bill, not to mention the raft of grants the state provides. Then there’s the continued provision for the Covid-era social relief of distress grant.
“We’ve asked Treasury many times regarding grants what their plan is,” Ninety One’s Furlan tells Currency. “They talk a good game in terms of how they’d like to overhaul the whole grants system and make it much more targeted.” But that hasn’t yet happened.
“Grants are obviously required by some in need and exploited by others but that could be a very big positive change in the future if they could get it right. But for now, what is temporary spend is recurring, indefinitely,” he says.
Where Roodt is happy, however, is in the fact that there’s less money to spend.
“The only way to get politicians to spend less money is to give them less money – so that is a beautiful thing,” he tells Currency.
And then there’s an apparent renewed commitment to how government spends its money.
Treasury, says the Budget Review, has “assessed over R312bn in spending programmes since 2013, highlighting shortcomings in policy costing, implementation and oversight that lead to duplication and waste.”
Previous reviews have already identified savings of R37.5bn. “That is quite exciting if it reaps some benefit – it’s like our own little Doge [the US department of government efficiency],” says Furlan.
Schoeman’s not getting carried away though.
“We’ve got some serious work as a GNU now in terms of what do we want fiscal policy to look like,” she says. “How are we going to spend the revenue we collect, efficiently? How do we get bang for our back? Does spending create any growth – clearly no – so how do we make that happen?”
Going for growth
Ultimately, that remains the biggest unknown for citizens, taxpayers and investors: where is South Africa’s growth going to come from?
Hopefully, some of it from the more than R1-trillion that the government is planning to spend on roads, rail, energy and water infrastructure.
Of R402bn for transport and logistics, R93.1bn has been allocated to roads agency Sanral, R53.1bn for provincial roads and R66.3bn to the Passenger Rail Agency of South Africa, which Treasury is hoping will “enable” a threefold increase in passenger trips from now to the end of the three-year period.
And then there’s R219.2bn to strengthen the electricity supply network, from generation to transmission and distribution, which includes investments in renewable energy projects.
As for water, R156.3bn has been allocated to service infrastructure including dams, and bulk infrastructure to service mines, factories and farms.
“There’s no silver bullet here, but everything is moving in the right direction,” says Els. “We need better confidence to get better growth. Ever since the unrest in the middle of 2021, government has shifted policy more towards private sector involvement; there’s a whole bunch of difficult things to overcome but we are moving in the right direction.”
Top image: Finance minister Enoch Godongwana. Picture: Gallo Images/Brenton Geach.
Finance minister Enoch Godongwana’s budget speech
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