Angels lurking in the detail of South Africa’s delayed March 2025 Budget

Helmo Preuss

There were angels lurking in the detail of South Africa’s delayed March 2025 Budget. While most attention focused on the scrapping of the 2 percentage point rise in the VAT rate proposed in February 2025 - replaced by a phased increase of half a percentage point this coming fiscal year and another half in the following year -  some gems were hiding in the 273-page Budget Review.

In my opinion, the standout revelation was the notable decline in irregular expenditure at the provincial level, dropping from R55 billion in 2022/23 to R20.7bn in 2023/24. Unauthorised expenditure also fell, from R3.1bn in 2022/23 to R2.2bn in 2023/24, while fruitless and wasteful expenditure decreased sharply from R626.6 million in 2022/23 to R193.1m million in 2023/24.

Another major highlight is that the typically conservative National Treasury has stuck to its February gross domestic product (GDP) growth projection for 2025 at 1.9%, surpassing the International Monetary Fund’s January 2025 forecast of 1.5%.

When assessing risks, Treasury lists only two downside risks against five upside risks — a rare optimistic tilt. This aligns with Capital Economics’ 2025 GDP forecast of 2.4%. Treasury anticipates final domestic demand to grow by 2.5%, though this is tempered at the GDP level by net foreign trade, as import growth outpaces exports.

Treasury’s upside Scenario A paints an even brighter picture: a rapid infrastructure investment programme, bolstered by scaled-up capital spending from public entities. This would boost energy supply beyond expectations, while rail and port operations recover lost transport volumes.

As a result, productive capacity and investor confidence rise, reducing the sovereign risk premium. Inflation - both producer and consumer - dips in the short term, settling at the midpoint of the target range over the medium term. Lower interest rates follow, spurring business and consumer spending. In this scenario, real GDP growth hits 2.7% in 2025, driven by higher capital stock and productivity, adding R1.1 trillion to GDP over the simulation period compared to the baseline.

A related gem is Treasury’s oversight on the current account deficit. It clung to a forecast of a 1.6% deficit for 2024, despite the South African Reserve Bank reporting a mere 0.6% deficit on March 6.This discrepancy - a full percentage point - suggests Treasury’s 2.3% deficit projection for 2025 could be overly pessimistic.

A smaller current account deficit supports the rand, which Treasury Director General Duncan Pieterse has repeatedly hailed as one of the strongest performers against the US dollar.

In his Budget Speech, Finance Minister Enoch Godongwana noted that, by the end of February, the South African Revenue Service (Sars) reported a significant rise in undisputed debt - billions of rands owed to the state. Sars also identified 156000 taxpayers who are either unregistered or have not filed despite substantial economic activity.

One final nugget: though the Budget was delayed by dissent within the Government of National Unity, the Budget Speech required just four iterations to reach consensus - a stark contrast to the nine iterations endured by former Finance Minister Tito Mboweni’s October 2018 Medium- Term Budget Policy Statement.

Helmo Preuss is a freelance writer on economics.
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