The Minister of Finance today presented a national budget that treads a precarious line between ambitious social spending, critical infrastructure investment, and the stark realities of a constrained fiscal environment. The Minister acknowledged a tougher economic outlook, while pinning hopes on structural reforms and improved revenue collection to help navigate the path forward. 

Against a backdrop of heightened global trade tensions and lowered international growth forecasts, South Africa’s own economic projections have been tempered. The Treasury now anticipates real GDP growth of just 1.4 per cent in 2025, a downward revision from the 1.9 per cent projected in March. 

The Fiscal Squeeze: Debt, Deficits, and Difficult Decisions 

The government aims to stabilise debt as a percentage of GDP at 77.4 per cent in 2025/26, slightly higher than previous estimates due to lower nominal GDP. A key strategy involves achieving a steadily expanding primary surplus, projected to grow from an estimated 0.8 per cent of GDP in this financial year to 2.1 per cent by 2027/28. This, the Minister hopes, will curtail debt service costs and rebuild fiscal buffers. 

This balancing act has necessitated some tough choices. The decision to keep VAT at 15 per cent, while offering relief, has “significantly reduced our ability to fund additional government programmes and projects to the extent we had deemed necessary”. Consequently, additional spending over the medium term has been curtailed by R68 billion, primarily affecting provisional allocations not yet assigned. 

Key fiscal strategy points include: 

• Non-interest expenditure is set to increase by an average of 5.4 per cent over three years (0.8 per cent in real terms). 

• The main budget deficit is projected to decrease by R8 billion over the Medium-Term Expenditure Framework (MTEF) compared to March estimates, enabled by the steadily expanding primary surplus. 

Generating Revenue: Tax Measures and SARS Empowerment 

With tax revenue projections revised down by R61.9 billion over three years due to the VAT decision and the weaker economic outlook, the Treasury is looking to bolster state coffers through specific tax measures and by empowering the revenue service. 

The key tax proposals and adjustments are as follows: 

• Personal income tax rebates and tax brackets are not adjusted. 

• Excise duties on alcoholic beverages will see an increase of 6.75 per cent. 

• Excise duties on cigars and pipe tobacco will increase by 6.75 per cent, and by 4.75 per cent on cigarettes and other tobacco products. 

• The general fuel levy on petrol will increase by 16 cents per litre, and on diesel by 15 cents per litre, effective from 4 June 2025. This is the only new tax proposal announced. 

• Transfer duty is adjusted for the effect of inflation. 

• There will be no ad valorem excise duty on lower value smartphones. 

• The VAT rate remains at 15 per cent, and the previously announced expansion of the zero-rated basket, which was intended to cushion poorer households from the VAT rate increase, now falls away and is withdrawn. 

Crucially, an additional R7.5 billion over the MTEF will be allocated to the South African Revenue Service (SARS) to enhance collection efforts. SARS anticipates this could yield an extra R20 billion to R50 billion annually, partly by targeting illicit trade in tobacco and other areas and increasing collections from debts owed to the fiscus. 

Spending Priorities: Social Wage and Infrastructure Drive 

Despite constraints, the budget directs a significant portion of resources towards social welfare and infrastructure. 

• 61 cents of every rand of consolidated, non-interest expenditure is earmarked for the social wage, funding free basic services like electricity, water, education, healthcare, affordable housing, as well as social grants. 

• Over R1 trillion is committed to critical infrastructure over three years to stimulate economic growth and improve service delivery. This will focus on transport and logistics (R402 billion), energy (R219.2 billion), and water and sanitation (R156.3 billion).  

• SANRAL receives R93.1 billion for the maintenance and rehabilitation of the 24,000-kilometer national road network. 

• PRASA is allocated R66.3 billion, including R18.2 billion for the rolling stock fleet renewal programme, aiming to increase passenger trips from 60 million in 2024/25 to 186 million by the end of the MTEF period. 

• Total allocated spending (excluding interest) will amount to R6.69 trillion over the medium term, with proposed additional spending of R180.1 billion, which is lower than the R232.6 billion proposed during the March 12 budget. 

• Education sees its provincial sector baseline reach R1.04 trillion over the MTEF, with R9.5 billion added to keep teachers in classrooms and hire more staff. An additional R10 billion for access to early education, announced in March, is kept unchanged. 

• The provincial health sector budget is R845 billion over the medium term, with an additional R20.8 billion to employ 800 post-community service doctors, procure essential goods and services, reduce accruals, and address personnel budget pressures. 

• Social grants see an increase, with the old age grant having increased by R120 to R2,310 in April 2025, set to increase by an additional R10 to R2,320 in October as announced in March. The COVID-19 social relief of distress grant is extended to the end of March 2026. 

Structural Reforms: The Engine for Future Growth? 

The government is banking heavily on structural reforms to unlock faster, inclusive growth. “Operation Vulindlela” remains central, with its second phase targeting: 

• Seeing-through existing reforms in energy, water, logistics, and in the visa regime. 

• Improving the performance of local government, including professionalising utilities and appointing suitably qualified people. 

• Harnessing digital transformation in government and building digital public infrastructure. 

• Addressing the apartheid legacy of spatial inequality through housing policy changes, accelerating the release of publicly owned land, clearing title deed backlogs, and reviewing regulations for low-cost housing. 

Spending efficiencies are also on the agenda, with National Treasury expenditure reviews identifying potential savings of R37.5 billion over time through improved oversight and operational changes. Underperforming programmes face closure as the 2026 MTEF budget process is redesigned. 

An Uncertain Path Ahead 

The threefold focus on balancing the budget through efficiencies, strengthening revenue collection, and advancing the Medium-Term Development Plan sets a clear, if challenging, course. Success will depend on robust implementation of reforms, the resilience of the global economy – which the IMF projects to grow at 2.8 per cent in 2025 amidst “heightened trade tensions and elevated policy uncertainty” – and SARS’s ability to deliver on its ambitious revenue targets. With domestic growth still modest, the path to fiscal consolidation and revitalised growth is a challenging one.