Navigating South Africa's Budget 2025: key decisions in a stagnant economy

South Africa’s economic outlook remains bleak, with National Treasury forecasting real GDP growth of just 1.7% over the Medium-Term Expenditure Framework (MTEF) period. Persistent structural constraints, weak investment confidence, and ongoing energy and logistics challenges continue to limit growth, raising serious concerns about fiscal stability. 

Finance Minister Enoch Godongwana has finally delivered South Africa’s 2025 Budget Speech, following two prior setbacks that delayed the announcement. One attempt was blocked by legal action, while the second was derailed by coalition disputes over the now-withdrawn VAT increase proposal.

The speech, originally scheduled for earlier this year, faced significant political and legal hurdles as government leaders struggled to find common ground on fiscal policy.

Speaking after the tabling of the Budget, Anchor Capital economist Casey Sprake highlighted that the Treasury has had to revise revenue projections downward due to the scrapped VAT rate hike, which was abandoned for political reasons. To compensate, fiscal drag has been applied, meaning personal income tax (PIT) brackets have not been adjusted for inflation. This alone is expected to generate R49.4 billion over the next three years. Additionally, higher excise duties on alcohol and tobacco and a freeze on inflation adjustments to medical tax credits will add R5.8 billion in revenue. In place of the VAT hike, the Treasury has opted for inflation-linked increases to the general fuel levy, a decision seen as less politically contentious, as it spreads the tax burden more broadly.

However, not all economists believe the government is making sound fiscal decisions. Theuns du Buisson, an economic researcher at the Solidarity Research Institute (SRI), describes the Budget as a continuation of poor economic policy, predicting ongoing economic stagnation. According to Du Buisson, Finance Minister Enoch Godongwana’s approach to redistribution and structural transformation is misguided.

“This is, as always, a poor budget. Simply dividing a shrinking economy by taxing the rich—and, according to the minister, spending 60 cents of every rand on social relief—is not sustainable. It is certainly not something to be proud of,” says Du Buisson.

He further argues that the income tax threshold unfairly classifies middle-class earners as wealthy. “People earning just R7,979 per month are classified as ‘rich’ under this budget, as this is the point at which someone starts paying income tax.”

Du Buisson also believes that the absence of a VAT increase is being wrongly framed as a revenue loss, rather than acknowledging the core issue: government spending is rising faster than economic growth. “The overall tax rate is 25.2% of GDP. The minister needs an extra 1% of GDP to balance the budget. The simple solution? Grow the economy by 4%, and the shortfall disappears,” he argues.

While the minister speaks of limited economic growth, Du Buisson contends that government policies are actively restricting growth potential. “Personal income tax brackets have once again not been adjusted for inflation, shrinking disposable income. On top of that, fuel levies are increasing for the first time in three years, affecting nearly every cost in the economy. How can growth happen without affordable energy and adequate consumer spending?” he asks.

Despite concerns around taxation and spending, there is some optimism about private sector involvement in infrastructure development. Solidarity notes that there is increasing space for business-led investment in transport infrastructure, which could help offset logistical inefficiencies that have contributed to the economy’s sluggish performance.

Meanwhile, UASA, a major trade union, has raised concerns about future tax burdens. “The minister has noted that the 2026 budget will need to introduce new tax measures to raise R20 billion, which could further squeeze consumers and taxpayers," says Abigail Moyo, UASA spokesperson.

Moreover, without a concrete plan for job creation, businesses will struggle to invest, limiting economic expansion and structural reform efforts. Outside of necessary spending allocations for health, education, state-owned enterprises (SOEs), security, and social relief, the Budget fails to offer any meaningful solutions beyond what has been presented in previous years, she says.

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