‘We tread water for another year' — this fiscal offering is a stopgap, not a solution

Daily Maverick

21-05-2025

After months of political brinkmanship, a VAT revolt, and two failed attempts, South Africa's third fiscal offering for 2025 has passed — not with vision, but with just enough duct tape to hold the economy together. Budget 3.0 isn't a blueprint for growth — it's a ceasefire between warring coalition partners, a lifeline for markets and a Band-Aid for a battered economy. Whether it holds, or builds, remains to be seen.
Finance Minister Enoch Godongwana opened his address in Parliament on Wednesday. with the now-familiar line: 'We are tabling this Budget against the backdrop of a global slowdown, domestic challenges and coalition government.' It's the kind of framing that's clinical, defensive and quietly damning.
He insisted it was 'not an austerity Budget', yet R68-billion in provisional spending has been cut, R1.2-billion will be spent daily on interest, and personal tax brackets have been frozen to harvest R49.4-billion through fiscal drag.
To plug the revenue gap left by the abandoned VAT increase — a move widely attributed to pressure from the Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and civil society litigation — the National Treasury has opted for less explosive tools: modest fuel levy increases (16c per litre for petrol, 15c per litre for diesel), sin tax hikes and a medical tax credit freeze that will quietly squeeze middle-income households. The SA Revenue Service, meanwhile, has been allocated an additional R7.5-billion over the medium term and told to deliver up between R35-billion and R50-billion in additional revenue.
In his address, Godongwana reiterated the Treasury's intent to 'stabilise debt, fund service delivery and rebuild fiscal credibility'. However, as economists across the board note, the numbers tell a more sobering story — stabilisation is coming at the cost of deferred investment and delayed reform.
Debt the devourer
In a 21 May research note, Jee-A van der Linde of Oxford Economics stated: 'The Treasury's credibility has been unduly dented as a result of the Budget wrangling.' The firm downgraded South Africa's GDP growth forecast to 1.0% for 2025, calling the Treasury's 1.4% projection 'a bit of a stretch'. Official Treasury estimates now forecast average growth of just 1.6% over the Medium-Term Expenditure Framework (MTEF).
Robert Openshaw, an economist at Aluma, put it plainly in his statement issued after the Budget: 'Twenty-two cents of every rand now goes to paying off interest, not development.' That amounts to more than R1.3-trillion across the MTEF. The Treasury's bond-switch scheme may offer temporary relief, but without growth the spiral will resume.
Casey Sprake of Anchor Capital called the Budget 'moderately bond-positive', but asked: 'Why couldn't this pragmatic version of the Budget have been presented in February?'
Tertia Jacobs, the treasury economist at Investec, echoed the sentiment: 'This is probably as good as we can get in the context of sluggish growth.'
Across the board, economists appear aligned: while Budget 3.0 may stabilise the immediate fallout, it's a stopgap, not a solution — and without credible growth, even well-managed debt becomes unsustainable.
Tax strategy — shock and squeeze
The DA claimed credit for stopping the VAT increase through litigation, but its support for Budget 3.0 is conditional.
'We see this as a pathway to a national Budget we should be able to support,' the party said. While it cautiously backed the new version, the DA maintained that unchecked government spending remained a red line. It welcomed the lack of bailouts for state-owned enterprises, a renewed focus on ghost workers and improved infrastructure allocations.
That infrastructure spend — more than R1-trillion over three years — is earmarked for roads, water, rail and Eskom grid upgrades. R219-billion has been committed to renewable energy. But delivery remains the great unknown. Raymond Parsons of NWU Business School warned, 'This is a holding-pattern Budget.' The Treasury's execution record, especially at provincial and municipal levels, invites caution.
Analysts have flagged that freezing personal income tax brackets without adjusting for inflation effectively amounts to a stealth tax on the middle class — a move that increases tax burdens even as real incomes decline. The average household, in effect, pays more with less, as purchasing power is quietly squeezed.
Markets hold — for now
'Markets thrive on certainty,' said Herschel Jawitz, the CEO of Jawitz Properties. With the VAT reversal locked in and no surprise tax grabs, the rand rallied below R18 and bond yields steadied. But Jawitz cautioned that sentiment, not stimulus, was doing the heavy lifting for now. Any future fiscal missteps could erase those modest gains.
Winners, losers and leftovers
The sugar industry breathed a sigh of relief. SA Canegrowers called the decision to freeze the Health Promotion Levy a win for rural jobs, saying: 'The sugar tax has been nothing but destructive … Treasury should scrap it to drive jobs and growth.'
The Treasury also walked back its earlier proposal to expand the zero-rated VAT basket — a decision that might preserve short-term stability but leaves the poor exposed to food inflation. That retreat preserved calm but erased equity.
The Child Support Grant rose by R30 — R1 per day — and is now R560 per month. However, the food poverty line is R796. That gap of nearly R240 renders the increase symbolic at best.
The Treasury has reiterated its commitment to frontline services, allocating R845-billion to health and R1.04-trillion to education over the medium term. But with population growth and inflation, these allocations barely maintain real value, let alone expand access or improve service delivery.
Savings, reform and the ghost in the machine
The Treasury has identified R37.5-billion in potential savings through public finance reform, expenditure audits and what it calls 'baseline reallocations'.
A nationwide 'ghost worker' audit has been launched to verify public sector payrolls — part of the Treasury's plan to tighten expenditure and reclaim integrity. Updates are expected in the October Medium-Term Budget Policy Statement.
A R21.6-billion contingency reserve has been set aside to manage shocks, and while the Budget deficit is held at 4.8% of GDP, that's significantly worse than the February target.
Still, the Treasury remains upbeat. The Budget facility for infrastructure, public-private partnership reforms and Operation Vulindlela are being repackaged as the engines of growth. But the question persists: Can the state implement its plans?
Coalition optics, not economic strategy
In a post-tabling analysis, Oxford Economics' Van der Linde noted: 'Political parties have been climbing over each other trying to claim credit.'
The EFF staged a VAT 'victory march' outside the Treasury. Inside Parliament, the Budget passed not because it solved anything, but because it offended just little enough to be politically survivable. In trying to avoid political collapse, the Government of National Unity may have sacrificed policy ambition — and it's unclear what, if anything, will fill that vacuum before the next crisis.
Political analyst Daniel Silke summarised the mood to Daily Maverick: 'We tread water for another year.'
So yes, it passed, calmed markets, patched over coalition fissures and avoided another fiscal implosion. But it didn't deliver reform. It didn't spark growth. It didn't shift the centre of gravity.
But holding is not the same as building, and South Africa may yet find itself back at the fiscal cliff's edge if growth doesn't follow. For now, the Budget holds. For now, at least, we are not yelling for rescue, nor drowning — but swimming upstream still lies ahead of us. DM