In February finance minister Enoch Godongwana unexpectedly shifted the fiscal strategy with a proposal to add R253bn to government spending over the next three years after years of cuts, funded mainly with a two percentage point increase in VAT.
In March he tabled a new version of the budget, which proposed to add just R230bn in spending, with the VAT increase down to one percentage point spread over two years.
On Wednesday he tabled a third version of the budget, this time with no VAT increase but additional spending which, at R180bn, was less than half his original ask.
In net terms, excluding funds already set aside, the minister plans to spend just R74bn extra over the three years of the medium term to last year’s budget baseline, down from R173bn in February. For the current year it’s just R43bn on a total budget of well over R2-trillion. Hardly money.
So what was the point of it all? SA has been through a torrid time since Godongwana tried and failed in his first attempt to table a budget based on a VAT increase anyone could have guessed would be controversial, not just among his coalition partners but within his own party.
The politics could have gone horribly wrong for SA, and at times almost did. But as the calm descended after the storm this week, his message ahead of Budget 3.0 was, essentially, that it was all a matter of GNU school fees. The government had a particular way of managing the budget process in the past and had not anticipated how different it would be as a result of the election outcome, Godongwana told journalists. The process would change moving forward. “The process on its own has been a learning process for everybody,” he said.
It was a high-risk way to learn. But the end result turned out to be surprisingly low risk in the sense that Treasury managed somehow to take the compromises the GNU crafted and turn them into a fiscal framework that still delivers on core promises. The debt to GDP ratio still peaks in the current fiscal year (2025/2026) before declining, though the peak keeps edging higher. It’s now projected at over 77%, from up from 76% in February and 75% last February, though Treasury says this is mainly because of a worse GDP outlook, not worse public finances. The government will still run primary surpluses that will stabilise the debt over time, with revenue exceeding non-interest spending. And though this is slightly lower than earlier projections for the current year at 0.8% of GDP, it ends up slightly higher at 2.1%.
How did they do this? One piece of the budget puzzle is that the revenue side looks unexpectedly better. The shortfall for last year (fiscal 2024/2025) ended up much narrower than expected, and even R9bn better than projected in March, thanks mainly to a last-minute chunk of dividend tax from the mining sector, likely from Anglo American. The SA Revenue Service (Sars) is beating expectations and is set to deliver even more debt collecting and compliance revenue in coming years thanks to its big extra budget allocation.
Godongwana, meanwhile, has kept his fiscal drag cash and reinstated inflation-linked fuel tax increases after a three-year holiday, raising an extra R3.5bn annually. He also budgeted for an unspecified R20bn of tax hikes next year, but if Sars delivers that could fall away. And though Treasury has cut its economic growth forecasts to an average 1.6% for the next three years, from 1.8% in the March budget, it’s still only down about R22bn on core revenue over the period (excluding the removal of VAT). The big risk is that growth falls even shorter than expected, or revenue proves less buoyant.
The risks on the spending side could be even greater, given the pressures that the latest budget has simply pushed out some time into the future. As the minister and his officials repeatedly emphasised, they haven’t actually cut baseline budgets compared to March or February — rather, they have merely taken away from the extra spending Godongwana originally proposed.
They emphasise they are still focused on boosting front-line services and infrastructure. Yet infrastructure is down from R47bn to R34bn over three years and front-line services from R71bn to R41bn. And inflation-related hikes to social grants have been slashed, supposedly because no VAT hike means they are not needed.
There was plenty of pushing the spending pressures out to the outer years, and that’s a risk. Against that is the opportunity that the political contestation over the budget has opened up — that finally, the GNU might make some decisions to cut some of the huge inefficiencies in government practices and programmes. Spending reviews over the past decade have identified R37bn of savings, and deputy minister Ashor Sarupen promises the reviews will be extended to cover whole sectors, not just individual programmes. But reviews are useless unless politicians are willing to make tough decisions to implement their findings and cut. If the GNU ministers can bring themselves to do that, all those school fees might have been justified.
Meanwhile, this week’s budget is effectively a holding operation, which pushes out some of the big decisions on taxing and spending to the October 2025 or February 2026 budgets, presumably in the hope the world and the SA economy won’t get too much worse. It’s a high-risk strategy in a high-risk and volatile global environment. With a debt ratio still too near 80% for comfort and interest costs that consume more than a fifth of its revenue, the government hasn’t much to cushion it in the event that domestic politics, global geopolitics, or global markets turn against SA.
The challenge, then, is to rebuild the fiscal cushioning. The downside of this year’s budget debacle is it will make that a much more complicated and contested consultative process. The upside is Godongwana won’t be left to come up with his own surprise strategy again.
That the 2025 budget turned out to be the first big test of the unity of the government shouldn’t have been a surprise. After all, the budget is the most tangible expression of any government’s policy choices. Now that everybody has got down there in the weeds of the budget process, it’s time to make better choices.
• Joffe is editor-at-large.
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