The 2025 Budget speech on Wednesday, 19 February is going to be delivered amid worsened economic and fiscal conditions compared to the 2024 Budget. Gross domestic product (GDP) growth for 2024 is expected to be around 0.8%, which is lower than the current 1.1% estimate by National Treasury. Medium-term estimates are also likely to be revised down. 

Unemployment improved marginally, by 1 percentage point to 31.9% between 2024’s first and fourth quarters. While inflation has improved since the 2024 Budget and monetary policy has been accommodating, economic growth is still weak, as evidenced by 2024’s third-quarter GDP figures of negative 0.3%; this was despite there being an uninterrupted supply of power.

In the 2024 Medium-Term Budget Policy Statement (MTBPS), the government expected debt to be at 75.5% of GDP for the 2025/26 fiscal year. Given low economic growth and further upward pressure on the fiscus, it will not be surprising to see that this figure has been revised upwards by at least 1.5 percentage points, together with upward adjustments to the medium-term estimates. In the 2024 Budget, National Treasury announced a debt-stabilising primary surplus to anchor fiscal policy, and the 2024 MTBPS indicated that further details on fiscal anchors are to follow in the 2025 Budget. Considering the government’s latest stance against fiscal policy anchors, it is important for National Treasury to provide clarity on the matter, as anchoring fiscal policy is important for debt sustainability and borrowing costs.

At the heart of economic growth strategy in the 2024 MTBPS were structural reforms-led economic growth and infrastructure investment in partnership with the private sector for cost and efficiency gains. Thus, the budget will continue to expand on plans to support reforms and investment; it’s worth noting that infrastructure investment and economic reforms have been part of the Budget speech for many years. Despite the increase in government debt, South Africans are yet to see the economic tide turn. 

The 2025 Budget speech is expected to continue to balance low revenue and growing spending needs.

Tax

• Total tax revenue collection is expected to be revised down, as GDP growth for the 2025/26 fiscal year will be lower than projected in the 2024 Budget or MTBPS.

• Changes to tax rates on the three top sources of tax revenue – personal income tax (PIT), value-added tax and corporate income tax – aren’t expected. With less room to increase these tax rates, National Treasury will have to look elsewhere to raise tax revenue. Therefore, PIT brackets are unlikely to change due to the upward pressure on government spending. The non-adjustment of tax brackets implies a tax increase, which in previous years has raised about R14 billion in tax revenue. This will add to the financial burden of households.

• There will be a small boost to income tax revenue as a result of the two-pot system, which was implemented in September 2024.

• The diesel fuel levy refund that was extended to the manufacturers of foodstuffs to alleviate the effects of load-shedding on food prices comes to an end in March 2025. This will provide a boost to revenue. 

• An increase in excise duties are also expected. The fuel levy and Road Accident Fund levy may be adjusted to raise revenue as these were last adjusted in 2021. Similarly, the health promotion levy might also be increased, as it was not increased in the 2023 – 2025 fiscal years.

• An adjustment to tax-free savings accounts, which was last increased to R36 000 a year in 2021, will be a welcome boost to household savings, for those who are able to save that amount. More savings means more future spending. 

Spending

• Infrastructure investment, managing the wage bill and social spending (which includes health, community development, social protection and education, among others) are priorities. 

• The Budget is expected to provide clarity on the reforms of the grant system as indicated in the 2024 MTBPS. In the 2025 State of the Nation Address, President Cyril Ramaphosa indicated that Social Relief of Distress (SDR) grants will be used “as a basis for the introduction of a sustainable form of income support for unemployed people”. Given the uncertainty about SDR grants and its funding, the finalisation of this matter will provide long-awaited clarity for grant recipients and fiscal stability.

• The National Health Insurance Bill was signed into law in May 2024. An outline of its funding is expected.

• Defence spending has been brought into the spotlight following the loss of 14 South African National Defence Force soldiers in the Democratic Republic of the Congo. It will be interesting to see how National Treasury responds to criticism of cuts to defence spending.

• US President Donald Trump’s recent freezing of funding to the President’s Emergency Plan for Aids Relief (PEPFAR) has left a funding hole that the government will have to fill.  

   Dr Tumisang Loate-Ntsoko is a senior lecturer in the Department of Economics at the University of Pretoria

Disclaimer: The opinions expressed in the article are solely those of the author and do not necessarily reflect the views of the University of Pretoria.