Budget 2025: Godongwana warns of possible reductions amidst deteriorating fiscus

The National Treasury has warned that the government could begin implementing expenditure reductions, reprioritisations or additional revenue measures over the medium term in a bid to address new spending pressures amidst slow economic growth.

This comes as the gross government debt is projected to reach R5.69 trillion or 76.1% of gross domestic product (GDP) this year, stabilising at 76.2% of GDP in 2025/26.

Debt is expected to stabilise at a slightly higher level than projected in the 2024 Medium-Term Budget Policy Statement (MTBPS) while debt-service costs are expected to rise from R389.6 billion in 2024/25 to R478.6bn in 2027/28, but stabilise at 21.7% in 2024/25 as a percentage of revenue.

"Over the medium term, new spending pressures will need to be addressed through expenditure reductions, reprioritisations or additional revenue measures," Treasury said.

Finance Minister Enoch Godongwnaa on Wednesday tabled the 2025 Budget before the National Assembly, saying it confirmed the government’s commitment to macroeconomic stability – which lays the foundation for sustainable growth – by restoring the health of the public finances.

He said the government’s determination to ensure sustainable public finances puts South Africa in a stronger position to withstand unforeseen shocks, while creating an environment conducive to higher investment and faster economic growth.

Godongwana said this also enabled the government to prioritise investment over debt service, which now consumes 22 cents of every rand of revenue and is significantly higher than in peer countries, driving up borrowing costs for households and businesses.

"The Budget remains committed to a balanced fiscal strategy. As projected in the 2024 MTBPS, a budget primary surplus of 0.5% of GDP will be achieved in 2024/25, and this will grow to 0.9% in 2025/26," Godongwana said.

"Government debt will stabilise, at 76.2% of GDP in 2025/26, while the consolidated budget deficit also narrows, to 3.5% by 2027/28. As debt stabilises, a growing primary surplus will enable the government to reduce debt-service costs as a proportion of revenue."

Godongwana said some of those savings will be used to build up fiscal buffers that we need as protection against future economic shocks. He said shocks like the COVID-19 pandemic, and other uncertainties stemming from the rising geopolitical tensions and the global economic ramifications thereof.

"Debt-service costs will amount to R389.6bn in the current financial year. This translates to 22 cents of every rand we raise in revenue. It is more than what we spend on health, the police and basic education.

"We must reverse this trend and prevent the cost of debt from taking away resources that could otherwise be spent on our pressing social needs, or to invest in growth. In this regard, our fiscal strategy stabilises debt service costs as a percentage of revenue in 2024/25 by maintaining a primary budget surplus."

Godongwana proposed a significant increase in revenue, including raising the value-added tax (VAT) rate by 0.5 percentage points in each of the next two years, bringing VAT to 16% in 2026/27, in response to new and persistent spending pressures.

The 2025 Budget funds spending pressures of R232.6bn over the Medium-Term Expenditure Framework period, including provisional allocations for frontline service delivery departments amounting to R70.7bn.

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