Enoch Godongwana's budget: a delicate balance of debt control and social investment unveiled

Daily Maverick

21-05-2025

The bottom line is that a scalpel has been deftly wielded instead of a chainsaw, but economists and the markets will welcome the Treasury's commitment to spending within its limited means.
With a scalpel in one hand and undisclosed tax measures for 2026 concealed by a glove in the other, Finance Minister Enoch Godongwana delivered a Budget on Wednesday that aimed to fill the revenue hole dug by the burying of the proposed VAT hikes while keeping mounting state debt levels under control.
But the minister insisted that containing debt did not translate into the pain of austerity.
'This is not an austerity Budget,' the minister said in his prepared remarks.
'It is also a redistributive budget. It directs 61 cents of every rand of consolidated, non-interest expenditure towards the social wage… This budget invests over R1-trillion in critical infrastructure to lift economic growth prospects and improve access to basic services.'
Pointedly, he noted that '… this is done without compromising the fiscal strategy of sustainable public finances'.
The long-stated aim of stabilising debt in 2025/26 at a peak level as measured as a percentage of gross domestic product (GDP) remains firmly in place, with the ratio now seen at 77.4% of GDP this fiscal year compared to 76.2% in March. This will be its highest level since the dawn of democracy in 1994.
'We have achieved this difficult balance by reducing additional spending over the medium term by R68-billion… the size of the proposed increases to allocations is reduced, in line with what we can afford.'
These 'downward revisions' to additional spending that were proposed in March over the next three years, an inflation-linked fuel levy adjustment, and undisclosed tax proposals for 2026 to boost state coffers by R20-billion — which are clearly in the drafting phase — were the key measures outlined to bridge the gap created by the scrapping of the VAT boost.
The Treasury insists there are no spending cuts, but 'downward revisions' to additional spending amount to the same thing when compared with what was outlined in March. If it walks like a duck and quacks like a duck, it ain't no chicken.
Painful Investment
The bottom line is that a scalpel has been deftly wielded instead of a chainsaw, but economists and the markets will welcome the Treasury's commitment to spending within its limited means.
Godongwana was diplomatic and gracious over the VAT fracas that ultimately produced this third try at a Budget.
'The debate and negotiations have deepened our understanding of policy trade-offs and institutional processes, while giving citizens unprecedented visibility into our democracy's evolution,' he said.
'Negotiation, debate and compromise, as we have seen unfold over the last weeks, has been a necessary, if sometimes painful, investment in the productivity of future government reform in the new political environment.'
There will be a slight increase in the gross borrowing requirement to R588.2-billion from the R582-billion foreseen in Budget 2.0. That will include payments to Eskom of R80.2-billion, R30-billion less than the 2024 Budget estimate.
The Budget deficit for this fiscal year is now seen amounting to 4.8% of GDP and is projected to narrow to 3.4% by 2027/28.
'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,' the minister said.
The Treasury has slashed its forecast for South African economic growth in 2025 to 1.4% from 1.9% in March, a reflection of ongoing domestic challenges and a worsening global outlook in the face of US President Donald Trump's chaotic tariff policies and trade wars.
The mysterious R20-billion tax measure
The tax measures to raise an additional R20-billion next year remain under wraps.
Although an additional R20-billion is set down in the Budget documents for collection in 2026, Chris Axelson, acting head of tax at the National Treasury, was somewhat coy when questioned by journalists during the Budget lockdown.
'We aren't going into specifics on that right now. There are a variety of options, including options put forward by the public.'
It's clear that the measures will not include any VAT revisions after the recent hullabaloo that almost tore asunder the Government of National Unity (GNU).
In his speech, the minister said that in total an additional R7.5-billion that had been allocated to the South African Revenue Service (SARS) over the next three years, and that any resulting windfall from improved revenue collection would mean the mystery tax measures would not need to be implemented.
'As SARS utilises this investment to raise additional revenue, which I believe can be at least R35-billion, the R20-billion to close the current revenue gap will not have to be raised through taxes,' Godongwana said.
He said SARS was also aiming to '… target illicit trade in tobacco and other areas, which should boost revenue over the medium term'.
All in all, it seems that a viable Budget has been pulled out of Godongwana's fedora against a fraught and fraying political and economic backdrop.
In baseball, after three strikes you are out, and the minister's bat on the third try has hit the ball. In cricket terms it may not be a six, but a boundary beckons. DM