The Treasury has trimmed its projection for SA’s economic growth in 2025 to 1.4% from 1.9%, noting that “global risk and economic weakness reinforce the need for us to put our fiscal house in order”.
The revision aligns closely with those by the Bureau for Economic Research and Moody’s, both of which foresee growth closer to 1.5% in 2025. However, it remains above the IMF’s 1% and the Bank of America’s 1.2%.
“Since the publication of the budget review in March, greater uncertainty and trade fragmentation have contributed to a weaker economic outlook,” the budget review states.
On Wednesday, finance minister Enoch Godongwana tabled the revised budget in parliament, adding that Treasury had learnt “lessons that will inform how we manage the budget process moving forward”.
“The reality, however, is that the decision to do away with the VAT increase, without a viable alternative source of revenue, significantly reduced our ability to fund additional government programmes and projects to the extent we had deemed necessary,” he said.
The main policy changes since March include the withdrawal of the highly contested proposed VAT hikes, alongside the removal of additional zero-rated food items (initially proposed to ease the burden on low-income households in the event of VAT hikes), and an inflation-related increase in the fuel levy.
“The baselines [of departments] remain intact,” deputy finance minister Ashor Surapen told journalists.
Over the medium term, GDP growth is forecast at 1.6%, “significantly lower than the 1.8% forecast two months ago”. However, growth is expected to reach 1.8% in 2027, with the Treasury banking on the recently launched phase 2 of Operation Vulindlela, which “will focus on dynamic cities, digital infrastructure and basic services”. The medium-term projection is lower than the 1.7% forecast in the medium-term budget policy statement of October 2024.
The revised GDP growth forecast necessitated adjustments to the revenue gap that resulted from the reversal of the increase in VAT proposed in March. Then, the gap over the medium term was seen at R75bn, but that has now been trimmed to R61.9bn.
The reduction was made after “taking into account the final revenue numbers for 2024/25 from the SA Revenue Service (Sars), which were R8.9bn higher, as well as taking out [the] VAT [increase] — which would reduce revenue by R75bn — and then also taking out the zero-rated expansion and including an inflationary increase in the general fuel levy, and then updating to be in line with the latest economic projections,” said Chris Axelson, acting head: tax and financial sector policy at the Treasury.
“There’s a 16c increase in petrol and 15c increase in diesel. So there is an increase in the fuel levy and consumers will feel it,” Axelson said.
Inflation, which averaged 4.4% in 2024, is projected to decline to 3.7% in 2025 (down from 4.3% projected in March). It is expected to edge up to 4.2% in 2026, though well within the Reserve Bank’s target range of 3%-6%.
The budget deficit is projected to narrow to 4.8% of GDP in 2025/26, and further to 3.4% in 2027/28. Gross government debt forecasts are unchanged from March, rising from R5.69-trillion in 2024/25 to R6.09-trillion in 2025/26 and R6.82-trillion in 2027/28.
The gross debt-to-GDP ratio is expected to peak at 77.4% this year — a slightly higher level than projected in the 2024 medium-term budget and the March 2025 Budget Review, mainly due to lower nominal GDP.
“For the first time since the 2000s, the government is consistently running a primary surplus, where revenue exceeds non-interest expenditure,” the budget review states. “In time, this growing surplus will reduce rising debt-service costs.”
However, Godongwana noted that debt-service costs remain high, “amounting to more than R1.3-trillion over the next three years”.
“Put differently, this means in 2025/26 alone we are spending around R1.2bn a day to service our debt,” he said.
In response to a question about whether the Treasury still has credibility, Godongwana referred to S&P Global Ratings’ recent affirmation of SA’s positive outlook, saying, “That’s credibility — it’s what the markets are saying.”
Tax revenue is seen increasing from R1.86-trillion in 2024/25 to R2.29-trillion in 2027/28.
Over the three-year medium-term expenditure framework, Sars will receive an additional R7.5bn directed towards technology, data science and AI to enhance efficiency and transparency in tax administration.
Part of this allocation is expected to increase debt collection by R20b-R50bn a year. In 2024/25, Sars collected R95bn in debt.
Tax policy measures proposed in the Budget Overview will raise an additional R18bn in 2025/26, with a further R20 bn in tax measures to be proposed in the 2026 budget.
On the expenditure side, the draft budget projects spending to rise to R2.6-trillion in 2025/26. Total consolidated spending is expected to grow at an average annual rate of 5.4%, from R2.4-trillion in 2024/25 to R2.81-trillion in 2027/28.
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