As South Africa braces for Finance Minister Enoch Godongwana’s third budget speech on Wednesday, a wave of expert opinions reveals a landscape marked by both cautious optimism and pronounced concerns.
With rising economic pressures and a growing budget deficit, Godongwana faces the complex task of generating revenue without curbing growth.
Old Mutual chief economist Johann Els highlighted the anticipated revenue shortfall following the scrapping of a planned Value Added Tax (VAT) increase.
Els estimated a loss of around R13.5 billion for the current year, with an alarming three-year total that could reach approximately R75bn.
“This will have to be made up for; Treasury will have to revise their gross domestic product (GDP) growth forecast downwards; they have it at 1.9% for 2025, but most forecasts have GDP around 1.5%,” he said.
The ramifications of this budget speech extend beyond just lost tax revenue. Els said the budget speech was more than just a VAT increase that needed to be made up for.
“It is crucial that the government sticks to the deficit targets that they set in the first two budgets. Investors and rating agencies would not like it if the government tries to make up for the loss in revenue by borrowing more.
It is crucial that they stick to the budget deficit target of 4.6% for this year, easing lower over the next few years to -3.5%. The primary surplus target of +0.9% rising to +2% over the next three years should be maintained. Crucially, the debt-to-GDP ratio peaking this year at 76.2% should be maintained. I think there needs to be significant expenditure cuts in this budget.”
Professor Raymond Parsons, an economist at the North-West University (NWU) Business School, choed the sentiment that this budget could provide a much-needed opportunity.
“The third budget stands a good chance of being a successful one. It should benefit from the robust debate around the VAT controversy, which identified new options on both the spending and revenue of the budget to better ‘balance the books’. The credibility of the budget will depend upon its ability to do two key things,” he said.
Parsons added that the government needed to stick close to its original goal of a debt-to-GDP ratio of 76.2%, and second, strongly reflect what is now needed to meet the Government of National Unity’s commitment to a 3% job-rich GDP growth target in the medium term.
Neil Roets, CEO of Debt Rescue, welcome the confirmation that VAT will remain at 15%, sparing families from yet another blow, but said they remained concerned about the possibility of proposed increases in fuel levies and sin taxes.
Roets said that equally troubling was the persistent budget deficit.
“The possibility of turning to ‘stealth’ measures such as bracket creep or frozen medical aid credits only shifts the burden onto consumers. We urge Minister Godongwana to prioritise spending efficiency rather than add to household strain,” he said.
Benay Sager, Executive Head of DebtBusters, said that their expectation was spending cuts across the different departments as there just was not enough money to go around.
“We expect tax brackets to remain as they have been, and as a result of bracket creep, there will be more money coming in. We also expect additional taxes to be announced on things like, potentially, crypto and crypto trading and so on,” he said.
Casey Sprake, economist at Anchor Capital, said that the central challenge of the third iteration of Budget 2025 liesd in how effectively the government responded to several mounting fiscal pressures.
Sprake added that to offset the negative fiscal impacts, the government is likely to dial back some of the new spending introduced in the previous two Budget 2025 updates.
“In particular, increased allocations for frontline services are expected to be trimmed. However, Treasury is likely to protect infrastructure spending, positioning it as central to efforts aimed at boosting long-term economic growth,” Sprake said.
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