{"id":12776,"date":"2025-03-12T15:34:51","date_gmt":"2025-03-12T16:34:51","guid":{"rendered":"https:\/\/www.premium-partners.net\/?p=12776"},"modified":"2025-03-16T12:36:54","modified_gmt":"2025-03-16T12:36:54","slug":"budget-godongwana-charts-a-recovery-path-for-south-africa-amid-fiscal-challenges","status":"publish","type":"post","link":"https:\/\/www.premium-partners.net\/fr\/builder\/budget-godongwana-charts-a-recovery-path-for-south-africa-amid-fiscal-challenges\/","title":{"rendered":"Budget: Godongwana charts a recovery path for South Africa amid fiscal challenges"},"content":{"rendered":"

This post<\/a> was originally published on this site<\/a><\/p>

<\/p>\n

Finance Minister Enoch Godongwana delivered a pivotal Budget Speech aimed at steering South Africa towards economic recovery and inclusive growth amidst fiscal deterioration and rising debt levels. <\/span><\/p>\n

With the country grappling with stagnated economic growth and pressing social needs, Godongwana\u2019s address presented a mixed bag of fiscal discipline, significant infrastructure investment, and unpopular revenue-enhancing measures.<\/span><\/p>\n

Godongwana said the reality of a mere 0.6% gross domestic product (GDP) growth in 2024 and the expectation of a 1.8% growth over the medium-term stressed an urgent need for structural reforms and macroeconomic stability.<\/span><\/p>\n

\u201cA bigger, faster growing economy, and the larger fiscal resources that comes with it, would give us more fiscal room to meet more of our developmental goals. But the truth is that our economy has stagnated for over a decade. In that time, GDP growth has averaged less than 2%, far below the level required to meet our expanding list of needs,\u201d Godongwana said.<\/span><\/p>\n

\u201cTo meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration.\u201d<\/span><\/p>\n

Budget 2025<\/figcaption><\/figure>\n
Budget 2025<\/figcaption><\/figure>\n

South Africa’s real economic growth for 2025 has been revised upwards closer to 2% on the back of the continued implementation of structural reforms and rising investor confidence. <\/span><\/p>\n

The National Treasury on Wednesday said South Africa’s real economic growth was forecast to increase to 1.9% in 2025 confidence following lower-than-expected growth in 2024 due to unanticipated weaknesses in agriculture and transport during the third quarter.<\/span><\/p>\n

This optimistic growth estimate diverges sharply from other forecasts, which have projected the nation\u2019s gross domestic product (GDP) growth to stagnate between 1.3% and 1.5% for this year. <\/span><\/p>\n

North West University’s Business School economist, Professor Raymond Parsons, said the promised comprehensive spending review was a step in the right direction, but realistic timelines needed to be set. <\/span><\/p>\n

\u201cWhether the Budget has done enough to ignite economic growth to eventually reach the overall target of 3% GDP growth in the GNU\u2019s recent Medium Term Development Plan (MTDP) is not obvious. Given a more vulnerable external environment the Budget assumption of 1.8%economic growth this year may also be too optimistic,\u201d Parsons said.<\/span><\/p>\n

However, Godongwana took an unpopular decision to increase the VAT slightly by 1 percentage point over the next two years to fund the fiscus as there are several persistent spending pressures in health, education, transport and security.  <\/span><\/p>\n

This contrasts with the previously rejected 2% hike for 2025-26.<\/span>To raise the revenue needed, the government proposed to increase the VAT rate by half-a-percentage point in 2025\/26 beginning  May 1, 2025, and by another half-a-percentage point in the following year, bringing the VAT rate to 16% in 2026\/27. <\/span><\/p>\n

Godongwana said the Treasury thoroughly examined alternatives to raising the VAT rate and weighed up the policy trade-offs involved, including increases to corporate and personal income taxes.<\/span><\/p>\n

\u201cIncreasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth. <\/span>Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs,\u201d he said. <\/span><\/p>\n

\u201cFurthermore, South Africa\u2019s corporate income tax collections are already higher than most of our peer countries. On the other hand, an increase to the personal income tax rate would reduce taxpayers\u2019 incentives to work and save.\u201d <\/span><\/p>\n

The government already has a significant debt burden with the gross government debt now projected to reach R5.69 trillion or 76.1% of gross domestic product GDP this year, before stabilising at 76.2% of GDP in 2025\/26. <\/span><\/p>\n

Debt is expected to stabilise at a slightly higher level than projected in the 2024 Medium-Term Budget Policy Statement (MTBPS) while debt-service costs are expected to rise from R389.6 billion in 2024\/25 to R478.6bn in 2027\/28, but stabilise at 21.7% in 2024\/25 as a percentage of revenue.<\/span><\/p>\n

However, <\/span>the country\u2019s fiscal strategy is forecast to stabilise debt service costs as a percentage of revenue in 2024\/25 by maintaining a primary budget surplus, which will enable the government to reduce debt-service costs as a proportion of revenue.<\/span><\/p>\n

\u201cTaking on additional debt to meet the spending pressures was also not feasible. The amount is simply too large. The cost of borrowing would be unaffordable. Our sub-investment credit rating would also make this level of borrowing costlier and put us at risk of even further downgrades,\u201d Godongwana said. <\/span><\/p>\n

\u201cVAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us to extend the social wage.\u201d<\/span><\/p>\n

Godongwana said the revenue proposed through the tax measures will allow the government to provide R232.6bn in additional funding to key programmes over the medium term, including infrastructure investments, social protection, a higher-than-anticipated public-service wage agreement, and provisional allocations for critical frontline services.<\/span><\/p>\n

The government is expanding the basket of zero-rated items and making no changes to the fuel levy to support lower income households and mitigate the impact of a higher VAT rate.<\/span><\/p>\n

It also proposed no inflationary adjustments to personal income tax brackets, rebates and medical tax credits. <\/span><\/p>\n

These measures will raise R28 billion in additional revenue in 2025\/26 and R14.5bn in 2026\/27. <\/span>The rand fell under pressure and weakened more than 1% to as low as R18.45 to the US dollar amid fiscal policy uncertainty over parliamentary approval as the DA announced that it will oppose the budget in its current form.<\/span><\/p>\n

\u201cA 1% VAT increase with the 0.5% increase this year and another 0.5% in 2026 is palatable, recognising that they can\u2019t over burden the consumer with a full 1% immediately,\u201d said Althea Soobyah, the national head of tax at Forvis Mazars in South Africa.<\/span><\/p>\n

\u201cConsumption of retail at the upper end will feel the biggest impact of a higher VAT rate. South Africa still performs relatively well compared to other emerging markets when it comes to our VAT rate, on a par or lower than the global standard.\u201d <\/span><\/p>\n

Godongwana also announced that the new regulations for public-private partnerships (PPPs) have been finalised and will take effect on 1 June 2025, particularly in the logistics and energy sectors.<\/span><\/p>\n

He said the regulations would reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, create clear rules for managing unsolicited bids, and strengthen fiscal risk governance.<\/span><\/p>\n

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) said the easing of the regulatory burden that projects of R 2bn and less will also fast track the execution of these important and localised projects. <\/span><\/p>\n

\u201cIt is also noteworthy that of the R1.03 trillion of public sector infrastructure spend that will be spent over the medium term, approximately half (R410bn) will be channelled through the state-owned entities, renewing once again, Seifsa\u2019s call of the very important strategic localisation agenda that can be achieved through these SOE\u2019s,\u201d Seifsa said.<\/span><\/p>\n

\u201cThe demand from these SOE\u2019s presents a massive opportunity to drive a mega-scale industrialisation project for the metals and engineering sector.\u201d<\/span><\/p>\n

BUSINESS REPORT<\/strong><\/p>","protected":false},"excerpt":{"rendered":"

Finance Minister Enoch Godongwana delivered a pivotal Budget Speech aimed at steering South Africa towards economic recovery and inclusive growth amidst fiscal deterioration and rising debt levels. With the country grappling with stagnated economic growth and pressing social needs, Godongwana\u2019s address presented a mixed bag of fiscal discipline, significant infrastructure investment, and unpopular revenue-enhancing measures.Godongwana said the reality of a mere 0.6% gross domestic product (GDP) growth in 2024 and the expectation of a 1.8% growth over the medium-term stressed an urgent need for structural reforms and macroeconomic stability.\u201cA bigger, faster growing economy, and the larger fiscal resources that comes with it, would give us more fiscal room to meet more of our developmental goals. But the truth is that our economy has stagnated for over a decade. In that time, GDP growth has averaged less than 2%, far below the level required to meet our expanding list of needs,\u201d Godongwana said.\u201cTo meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration.\u201dBudget 2025Budget 2025South Africa’s real economic growth for 2025 has been revised upwards closer to 2% on the back of the continued implementation of structural reforms and rising investor confidence. The National Treasury on Wednesday said South Africa’s real economic growth was forecast to increase to 1.9% in 2025 confidence following lower-than-expected growth in 2024 due to unanticipated weaknesses in agriculture and transport during the third quarter.This optimistic growth estimate diverges sharply from other forecasts, which have projected the nation\u2019s gross domestic product (GDP) growth to stagnate between 1.3% and 1.5% for this year.\u00a0North West University’s Business School economist, Professor Raymond Parsons, said the promised comprehensive spending review was a step in the right direction, but realistic timelines needed to be set. \u201cWhether the Budget has done enough to ignite economic growth to eventually reach the overall target of 3% GDP growth in the GNU\u2019s recent Medium Term Development Plan (MTDP) is not obvious. Given a more vulnerable external environment the Budget assumption of 1.8%economic growth this year may also be too optimistic,\u201d Parsons said.However, Godongwana took an unpopular decision to increase the VAT slightly by 1 percentage point over the next two years to fund the fiscus as there are several persistent spending pressures in health, education, transport and security.\u00a0 This contrasts with the previously rejected 2% hike for 2025-26.To raise the revenue needed, the government proposed to increase the VAT rate by half-a-percentage point in 2025\/26 beginning\u00a0 May 1, 2025, and by another half-a-percentage point in the following year, bringing the VAT rate to 16% in 2026\/27. Godongwana said the Treasury thoroughly examined alternatives to raising the VAT rate and weighed up the policy trade-offs involved, including increases to corporate and personal income taxes.\u201cIncreasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth. Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs,\u201d he said. \u201cFurthermore, South Africa\u2019s corporate income tax collections are already higher than most of our peer countries. On the other hand, an increase to the personal income tax rate would reduce taxpayers\u2019 incentives to work and save.\u201d The government already has a significant debt burden with the gross government debt now projected to reach R5.69 trillion or 76.1% of gross domestic product GDP this year, before stabilising at 76.2% of GDP in 2025\/26. Debt is expected to stabilise at a slightly higher level than projected in the 2024 Medium-Term Budget Policy Statement (MTBPS) while debt-service costs are expected to rise from R389.6 billion in 2024\/25 to R478.6bn in 2027\/28, but stabilise at 21.7% in 2024\/25 as a percentage of revenue.However, the country\u2019s fiscal strategy is forecast to stabilise debt service costs as a percentage of revenue in 2024\/25 by maintaining a primary budget surplus, which will enable the government to reduce debt-service costs as a proportion of revenue.\u201cTaking on additional debt to meet the spending pressures was also not feasible. The amount is simply too large. The cost of borrowing would be unaffordable. Our sub-investment credit rating would also make this level of borrowing costlier and put us at risk of even further downgrades,\u201d Godongwana said. \u201cVAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us to extend the social wage.\u201dGodongwana said the revenue proposed through the tax measures will allow the government to provide R232.6bn in additional funding to key programmes over the medium term, including infrastructure investments, social protection, a higher-than-anticipated public-service wage agreement, and provisional allocations for critical frontline services.The government is expanding the basket of zero-rated items and making no changes to the fuel levy to support lower income households and mitigate the impact of a higher VAT rate.It also proposed no inflationary adjustments to personal income tax brackets, rebates and medical tax credits. These measures will raise R28 billion in additional revenue in 2025\/26 and R14.5bn in 2026\/27. The rand fell under pressure and weakened more than 1% to as low as R18.45 to the US dollar amid fiscal policy uncertainty over parliamentary approval as the DA announced that it will oppose the budget in its current form.\u201cA 1% VAT increase with the 0.5% increase this year and another 0.5% in 2026 is palatable, recognising that they can\u2019t over burden the consumer with a full 1% immediately,\u201d said Althea Soobyah, the national head of tax at Forvis Mazars in South Africa.\u201cConsumption of retail at the upper end will feel the biggest impact of a higher VAT rate. South Africa still performs relatively well compared to other emerging markets when it comes to our VAT rate, on a par or lower than the global standard.\u201d Godongwana also announced that the new regulations for public-private partnerships (PPPs) have been finalised and will take effect on 1 June 2025, particularly in the logistics and energy sectors.He said the regulations would reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, create clear rules for managing unsolicited bids, and strengthen fiscal risk governance.The Steel and Engineering Industries Federation of Southern Africa (Seifsa) said the easing of the regulatory burden that projects of R 2bn and less will also fast track the execution of these important and localised projects. \u201cIt is also noteworthy that of the R1.03 trillion of public sector infrastructure spend that will be spent over the medium term, approximately half (R410bn) will be channelled through the state-owned entities, renewing once again, Seifsa\u2019s call of the very important strategic localisation agenda that can be achieved through these SOE\u2019s,\u201d Seifsa said.\u201cThe demand from these SOE\u2019s presents a massive opportunity to drive a mega-scale industrialisation project for the metals and engineering sector.\u201dBUSINESS REPORT<\/p>","protected":false},"author":1,"featured_media":12778,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-12776","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-builder"],"_links":{"self":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/12776","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/comments?post=12776"}],"version-history":[{"count":2,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/12776\/revisions"}],"predecessor-version":[{"id":12779,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/12776\/revisions\/12779"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/media\/12778"}],"wp:attachment":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/media?parent=12776"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/categories?post=12776"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/tags?post=12776"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}