A national budget is not merely an accounting exercise measuring what we earn, what we spend and what we borrow as a nation. The finance minister, Enoch Godongwana, highlighted this in a speech during the tabling of the 2025 Budget in parliament.
“It is a reflection of the difficult trade-offs needed to balance fiscal sustainability while addressing our developmental goals”, he said.
Drawing attention to the decision to retain VAT at 15%, the minister emphasised that the decision “reflects our commitment to listen to South Africans, and to all the political parties represented in this House”.
However, 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”.
Nevertheless, the budget supports sustainable finances, the social wage and investments in economic growth.
It increases non-interest expenditure by an average of 5.4 per cent over three years while directing 61 cents of every rand of consolidated, non-interest expenditure towards the social wage. The budget also invests over R1 trillion in critical infrastructure to lift economic growth prospects and improve access to basic services.
The difficult balance has been achieved by reducing additional spending over the medium term by R68 billion with the reductions primarily aimed at provisional allocations not yet assigned to votes.
“Our focus going forward is threefold: balancing the budget through spending efficiencies, strengthening revenue collection, and giving expression to the Medium-Term Development Plan”, said the minister.
ECONOMIC OUTLOOK
GLOBAL
The global economy is facing heightened trade tensions and elevated policy uncertainty with worrying economic consequences.
The International Monetary Fund now projects global growth at 2.8 per cent in 2025.
This is 0.5 percentage points lower than the January estimate.
Global trade is projected at 1.7 per cent in 2025, which is also much lower than the January estimate.
At the same time, inflation expectations are now above central bank targets in many advanced and emerging market economies.
According to the minister, new trade barriers may raise inflation and prolong the cycle of higher interest rates.
DOMESTIC
The minister highlighted that South Africa, as a small, open economy, is dependent on global trade and financial inflows making the local economy particularly exposed to global economic developments.
Real GDP growth is estimated to grow at 1.4 per cent in 2025, lower than the 1.9 per cent projected in March.
Over the next two years, national treasury projects real GDP growth to rise to 1.6 per cent in 2026 and 1.8 per cent in 2027.
Going forward, the risks to the outlook remain elevated.
These include the worsening global outlook, weaker-than-expected growth in the fourth quarter of 2024, the persistence of logistics constraints and higher borrowing costs.
“These developments are a vivid reminder that we must urgently turn the tide on our economic prospects and get our fiscal affairs in order”, the finance minister said.
“Faster, inclusive growth that creates jobs is the only path towards a more prosperous South Africa”, he added.
FISCAL OUTLOOK, TAX PROPOSALS AND BORROWING
Government’s balanced fiscal strategy remains on track.
It stabilises debt as a percentage of GDP, achieves a primary surplus, expands infrastructure investment and supports the social wage.
In 2025/26, government debt is projected to stabilize at 77.4 per cent of GDP.
While this is 1.2 per cent higher than projected in the March 12 budget, it is mainly due to lower nominal GDP.
Gross government debt is expected to increase from R5.69 trillion in 2024/25 to R6.09 trillion in 2025/26 and R6.82 trillion in 2027/28.
The main budget deficit decreases by R8 billion over the MTEF, compared to treasury estimates in March.
By 2027/28, the primary surplus will grow from an estimated 0.8 per cent of GDP in this financial year to 2.1 per cent meaning that revenue will continue to be larger than non-interest expenditure over the next three years.
The minister pointed out that debt service costs remain high, amounting to more than R1.3 trillion over the next three years.
This means that, in 2025/26, government is spending around R1.2 billion per day to service debt.
Tax revenue is expected to rise from R1.86 trillion in 2024/25 to R2.29 trillion in 2027/28.
The minister highlighted that, compared to the March estimates, tax revenue projections have been revised down by R61.9 billion over the three years.
“This reflects the reversal of VAT increase and the much weaker economic outlook”, he said.
The budget proposes an inflation-linked increase to the general fuel levy.
The minister highlighted that, for the 2025/26 fiscal year, this is the only new tax proposal.
It means that from the fourth of June this year, the general fuel levy will increase by 16 cents per litre for petrol, and by 15 cents per litre for diesel.
Godongwana highlighted that, unfortunately, this tax measure alone will not close the fiscal gap over the medium term.
The 2026 Budget will, therefore, need to propose new tax measures, aimed at raising R20 billion.
SPENDING PROPOSALS
Total allocated spending excluding interest will amount to R6.69 trillion over the medium term with R2.58 trillion consolidated government expenditure penciled in for 2025/26.
There is also proposed additional spending of R180.1 billion which is lower than the R232.6 billion proposed during the March 12 budget.
The budget projects consolidated spending growth averaging 5.4 per cent annually, from R2.4 trillion in 2024/25 to R2.81 trillion in 2027/28.
The provincial education sector baseline over the 2025 MTEF is R1.04 trillion, and R9.5 billion will be added over the medium term to keep teachers in classrooms and hire more staff.
An additional R10 billion has been added to the baseline as announced during the March 12 budget to expand access to early education.
This will increase the early childhood development (ECD) subsidy from R17 per child per day to R24.
The extra funding will also support increased access to ECD for 700,000 more children, up to the age of five years.
The provincial health sector budget is R845 billion over the medium term.
This budget will be increased by R20.8 billion over three years to employ 800 post-community service doctors and essential goods and services and reduction of accruals.
This increase will also assist the sector in addressing personnel budget pressures.
The increase in the social grants budget of R1.6 billion in 2025/26 remains.
From April 2025, the old age grant increased by R120 to R2,310 and is set to increase by an additional R10 to R2,320 in October, as originally announced in March.
The COVID-19 social relief of distress will be extended to the end of March 2026.
The R5 billion allocation proposed to the department of defence for its participation in the SADC mission in the DRC is reduced.
But the allocation for 2025/26 has been increased from R1.8 billion to R3 billion.
“This will cover the immediate costs of an orderly and safe withdrawal of our troops and mission equipment”, said the minister.
R1.4 billion is allocated to support the preparations for the upcoming local elections.
R885 million of the allocation is for the Independent Electoral Commission and R550 million for the South African Police Service and the South African National Defence Force to maintain public order.
The South African Revenue Service receives an additional R4 billion to strengthen capacity.
Public infrastructure spending over three years will exceed the R1 trillion mark.
Of the R402 billion for transport and logistics, R93.1 billion is for the South African National Roads Agency (SANRAL) to keep the 24,000-kilometer national road network in active maintenance and rehabilitation.
R53.1 billion is for the maintenance and refurbishment of provincial roads.
R66.3 billion is allocated to PRASA, out of which R18.2 billion is for the rolling stock fleet renewal programme and R12.3 billion is provisionally allocated for the renewal of the signaling system.
The energy sector will invest R219.2 billion on strengthening the electricity supply network, from generation to transmission and distribution.
This includes investments in renewable energy projects which continue to contribute to stabilising the power supply resulting in reduced loadshedding.
The water and sanitation sector will spend R156.3 billion on expanding our water resource and service infrastructure including dams, bulk infrastructure to service mines, factories and farms.
DIVISION OF REVENUE
Over the MTEF period, excluding payments for servicing debt, the contingency reserve and provisional allocations, 48.3 per cent of nationally raised revenue is allocated to national government, 42 per cent to provinces and 9.7 per cent to municipalities.
R2.4 trillion of total non-interest spending will be allocated to provinces over the medium term.
Municipalities will receive R552.7 billion over the same period.
The split addresses the fiscal realities faced by provinces and local governments.
The allocations will fund increases in the cost of bulk water and electricity costs provided for free to needy households.
In 2025/26, 83 per cent of the local government equitable share provides a free basic services package of R610 per month to 11.2 million poor households.
ON THE HORIZON
The new regulations for public-private partnerships (PPPs) were gazetted earlier this year and will take effect next month.
These will reduce the procedural complexity of undertaking PPPs, increasing the deal flow and allowing government to leverage its limited resources to fast-track infrastructure provision.
Enabling guidelines and frameworks to support the new regulations have been drawn up and will be published in the next few weeks.
According to treasury, the unsolicited proposals framework will create clear rules for managing proposals from the private sector and the framework for fiscal commitments and contingent liabilities will strengthen fiscal risk governance.
Plans are also afoot to redesign the budget process to close low-priority or underperforming programmes, and achieve greater efficiency in procurement, ICT and infrastructure management.
The process will also implement reforms flowing from the recent review of public employment programmes and active labour market programmes discussed in the 2024 MTBPS.
Treasury will also implement a range of reforms to improve how infrastructure programmes and projects are planned, procured, contracted and implemented in provinces and municipalities.
In addition, government has begun a process to identify ghost workers and other payroll irregularities.
“The new data-driven approach will integrate multiple administrative datasets, more easily detecting anomalies across national and provincial departments.”
Visit discover.sabinet.co.za to learn more.
Other Resources:
2025 Budget Overview
2025 Revised Estimates of National Expenditure
2025 Gender Budget Statement
A Budget for Growth and Sustainable Public Finances
