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On May 21, Finance Minister Enoch Godongwana presented the long-awaited National Budget, following previous delays caused by political misalignment within the Government of National Unity (GNU).
With these challenges temporarily sidelined, the latest budget carefully balances economic growth objectives with the need to address fiscal shortfalls. This was discussed in a recent article written for the Money Marketing website by Old Mutual.
Key Takeaways for Business
The overarching theme of this budget remains fiscal consolidation. The debt and deficit projections largely align with earlier versions, although weaker expected nominal growth slightly worsens the outlook. Domestic GDP growth forecasts have been revised downward to 1.4% for 2025, 1.6% for 2026, and 1.8% for 2027—figures consistent with private sector estimates. Lower nominal growth is expected to put downward pressure on tax revenue collection.
Treasury aims to maintain a primary surplus, where tax revenue exceeds non-interest spending. Over the medium term, this surplus is projected to rise from 0.7% to 2.1% by 2027/28. The main budget deficit, including interest payments, is expected to shrink to 3.2% of GDP by 2027/28. Consequently, the debt-to-GDP ratio will likely peak in the current fiscal year at 77.4% before declining gradually.
Debt-Service Costs and Tax Measures
High interest rates on government debt remain a pressing issue, with debt-service costs consuming 22% of revenue collected by SARS. While this burden is expected to peak and then decline, it temporarily limits spending flexibility.
As expected, there is no immediate VAT increase. However, unspecified tax hikes—amounting to approximately R20 billion per year—are planned from next year. Treasury will seek political alignment before implementing any VAT adjustments. To enhance tax collection efficiency, SARS has been allocated an additional R4 billion. Meanwhile, the fuel levy will rise in line with inflation, increasing by 16 cents per litre.
Without additional VAT revenue, some previously proposed expenditures have been revised downward. Nonetheless, a R180 billion increase in baseline spending remains, supporting frontline services and infrastructure development.
Infrastructure Investment and Fiscal Discipline
The budget maintains a strong commitment to infrastructure investment, allocating R1 trillion over the medium term. Priority areas include roads and energy, with an emphasis on execution efficiency to maximise economic growth potential.
Debt stabilisation is projected at 77.4% of GDP for 2025/26, slightly higher than previous estimates due to lower nominal growth. Treasury has outlined cost-saving measures that could mitigate the need for further tax increases in 2026. Meanwhile, discussions on adjusting the inflation target continue between Treasury and the South African Reserve Bank, with further rate cuts possible depending on inflation trends.
Market reactions to the budget have been neutral in the short term. However, geopolitical developments, such as President Ramaphosa’s meeting with President Trump in Washington, could influence sentiment. Treasury’s consistent fiscal strategy has bolstered market confidence, as evidenced by Moody’s reaffirmation of South Africa’s credit rating with a positive outlook.
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Strategic Considerations for Businesses
While the budget remains largely in line with previous iterations, adjustments were made following the removal of the VAT increase. Reductions in frontline service spending amount to R30 billion, while infrastructure investment received an additional R34 billion, reinforcing the emphasis on long-term economic expansion. Effective implementation will be crucial.
The increased funding for SARS (R4 billion) and the introduction of spending reviews signal a greater focus on revenue collection and expenditure efficiency. Treasury has not specified expected savings but indicated that successful spending reviews could offset the need for future tax hikes. Monitoring SARS’ collection performance and Treasury’s expenditure assessments will be critical in the coming months.
Macroeconomic Outlook and Business Strategy
Projected GDP growth for 2025 has been revised down to 1.4%, reflecting broader global economic pressures. This remains well below the 3-4% growth rate needed to reduce unemployment, alleviate poverty, and generate adequate tax revenue for social programs.
Infrastructure development and structural reforms remain key to stimulating economic growth. Accelerated capital investments, along with regulatory enhancements under Operation Vulindlela, will be instrumental in fostering economic resilience.
From an industry perspective, GDP growth directly influences sectoral expansion and profitability. In the construction sector, for instance, every percentage point of GDP growth historically translates into a 3-4% increase in order inflows. Conversely, sluggish growth sustains revenue stagnation across industries. A sustained cycle of infrastructure investment and reform could drive economic momentum, enhancing corporate earnings and market valuations.
Conclusion
While global uncertainties continue to pose risks, the latest budget reinforces South Africa’s commitment to fiscal stability and infrastructure-driven growth. Businesses must adapt their strategies to navigate economic pressures, optimize efficiencies, and explore restructuring options where necessary. Business rescue practitioners (BRPs) will play a vital role in supporting enterprises facing financial challenges.
Key Business Insights from the Budget
- Fiscal Consolidation Remains a Priority: The government remains committed to stabilizing the debt-to-GDP ratio at 77.4% by 2025/26, with efforts focused on narrowing the budget deficit to 3.2% by 2027/28.
- Debt-Service Costs and Spending Adjustments: Interest payments consume 22% of revenue but are expected to peak and decline, freeing up funds for critical services. Infrastructure spending has increased, while frontline service budgets have been trimmed.
- Infrastructure Investment Focus: An additional R34 billion has been allocated to infrastructure, bringing the total to R1 trillion. Roads and energy remain priority sectors for long-term growth.
- Slow Economic Growth Projections: GDP growth forecasts for 2025 have been revised down to 1.4%, highlighting the need for increased capital investment and structural reform.
- Stable Policy Environment: Treasury’s consistent fiscal stance has improved market confidence, with Moody’s reaffirming South Africa’s credit rating with a positive outlook.
