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IOL News
20-05-2025
- Business
- IOL News
How Budget 3. 0's focus on infrastructure investment could transform South Africa's property market
Pressure is mounting on Finance Minister Enoch Godongwana as he is expected to table the National Budget Review for the third attempt in Parliament on Wednesday after tensions within the Government of National Unity coalition over an increase in value-added tax (VAT) rates led to the budget being amended and re-tabled three times. Image: File As the Finance Minister Enoch Godongwana re-tables the revised National Budget on Wednesday, the major expectation will be around the fiscal aggregates, specifically the budget deficit and debt-to-GDP ratio. Professor Waldo Krugell, an economist from the School of Economic Sciences at the North-West University, said whatever spending cuts the Minister comes up with will still need to protect frontline services and maintain the path of fiscal consolidation. 'The influence on the property sector is quite indirect, but if he is able to do that, it can increase business confidence and investment in general, and that is good for property. A more sustainable fiscal stance will also help to bring down interest rates on long-term government debt, which is good for other interest rates in the long run,' Krugell said. Dr Meshel Muzuva, the Academic Programme Leader at the Management College of Southern Africa's (MANCOSA) School of Business Excellence, said as South Africa prepares for the re-tabling of what is now known as Budget 3.0, expectations are high, and the stakes are even higher. She said this iteration of the national budget arrives amid a shifting political landscape, a weakened growth outlook, and growing fiscal pressures. 'It is more than just a reset; it is an opportunity to reinforce fiscal credibility while laying the groundwork for inclusive economic recovery,' Muzuva said. She added that with GDP projections revised downward and inflation easing, the Finance Minister faces the tough task of balancing lower tax revenues against growing spending demands, all while maintaining the commitment to fiscal consolidation. 'Despite some relief in the form of improved corporate tax collections and a R15 billion closing cash surplus, fiscal space remains tight. The main budget deficit has improved slightly to 4.5% of GDP (Investec, 2025), but with debt levels still elevated, tough trade-offs are inevitable.' For the property sector, the academic said the budget is a significant development. She said they would be looking out for infrastructure investment in increased allocations to transport, energy, and housing as this could unlock new development opportunities and boost land values. She said they will also be looking for tax policy as changes to transfer duties, capital gains tax, or bracket creep could impact property transactions and investor confidence. 'Any upward shift in transaction costs would likely dampen demand, especially in the mid-tier and high-end residential markets.' Muzuva said that while the South African Reserve Bank (SARB) sets rates, fiscal policy can influence borrowing costs. She said a stable budget could help ease long-term interest rate pressures, benefiting mortgage affordability and real estate financing. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ The academic added that they would also be looking for housing incentives as government support for affordable housing or urban densification initiatives would be welcomed by the sector. However, she warned that, given current fiscal limitations, expectations around substantial incentives should remain measured. Tsekiso Machike, the spokesperson for the Minister of Human Settlements, said that the shrinking government's fiscus with the department budget cuts and like any other government department and institution. 'We would appreciate it if we could be allocated more money to enable the department to accelerate its housing delivery programme to the deserving and qualifying beneficiaries and eradicate the housing backlog. "However, we are looking forward to the upcoming Budget and are optimistic that there will be a reasonable allocation of funds to the department under the circumstances of budget cuts and constraints,' Machike said. Adrian Goslett, CEO of RE/MAX of Southern Africa and chairman of the Real Estate Business Owners of South Africa (REBOSA) notes that this about-face was born of coalition politics, but said it ultimately reflects a commitment to stable, consensus-driven economic management, a factor he views as crucial for investor confidence in the country. 'When the Budget 3.0 is announced, I'll be focusing on the scrapped VAT increase and how the government plans to compensate for the revenue gap – hopefully, there will be no reversal of the increased exemption threshold for transfer duty from R1.1 million to R1.21 million,' Goslett said. He said one of the less visible but critical outcomes of the budget saga is its impact on the interest rate outlook. ' By avoiding a VAT-induced price spike, Budget 3.0 removes one potential upward driver of inflation, which could help the case for interest rates to remain steady (or even ease) later in the year,' Goslett said. Muzuva said Budget 3.0 is a pivotal opportunity to restore confidence. She added that for the property sector, the focus will be on whether the government can prioritise growth-enabling investments, protect infrastructure commitments, and send a clear signal that South Africa remains open for investment even in a constrained fiscal climate. Reezwan Sumad, a research analyst at Nedbank CIB, said on Tuesday morning, the local markets are likely to remain cautious ahead of both the budget and the meeting between the South African and American delegations on Wednesday. 'Until the outcomes of these are known, participants are likely to remain on the sidelines,' Sumad said. Independent Media Property
IOL News
20-05-2025
- Business
- IOL News
‘We cannot have a third budget failure' — Economist warns as Godongwana faces GNU showdown
Pressure is mounting on Finance Minister Enoch Godongwana as he is expected to table the National Budget Review for the third attempt in Parliament on Wednesday after tensions within the Government of National Unity coalition over an increase in value-added tax (VAT) rates led to the budget being amended and re-tabled three times. Image: File Finance Minister Enoch Godongwana is under pressure to ensure his 2025 budget wins the support of Government of National Unity (GNU) partners, with an economist warning that the country cannot have a situation where a third budget is not passed. Godongwana is scheduled to table his budget speech on Wednesday. This comes after the rejection of two previous budget proposals and the recent decision to scrap a planned increase in Value-Added Tax (VAT), placing even more strain on the National Treasury to find alternative ways to address South Africa's growing fiscal crisis. Speaking to IOL News, Professor Jannie Rossouw of the Wits Business School emphasised the importance of passing the upcoming budget. 'The big thing is, we can only hope that this budget will go through Parliament,' Rossouw said. 'It's problematic that the previous two budgets were not approved by Parliament. The credibility of both the Finance Minister and the National Treasury has been damaged.' Rossouw said that Godongwana must ensure the budget has the backing of the GNU partners before it is tabled in Parliament. 'I can only hope that he negotiated the budget with the GNU partners and that they agreed to it before it's presented,' Rossouw said. 'We cannot have a situation where a third budget does not pass. That does not instill confidence in the government's ability to run the economy.' Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ The first budget, originally set for February, was postponed amid disagreements within the GNU over the proposed VAT hike. A revised version, introduced in March, suggested staggered increases of 0.5 percentage points but was met with strong opposition from coalition partners, especially the Democratic Alliance (DA), including parties outside the GNU. The Western Cape High Court later blocked the proposal. The Economic Freedom Fighters (EFF) also challenged the VAT hike in court. With limited options, Godongwana faces the difficult task of bridging the funding gap while satisfying all members of the GNU. Rossouw said the budget is likely to include deep spending cuts. 'In my view, it will be necessary to cut some expenditure, because the government cannot currently raise taxes,' he said. 'And I can think of several instances where expenditure can be cut without harming service delivery to the average South African.' Among Rossouw's suggestions, is eliminating all 43 deputy ministers, which is a demand echoed by several political parties in light of the bloated GNU. 'I don't know what deputy ministers do or why we need 43 of them. Simply get rid of them,' he said. He also called for the closure of underperforming departments. 'Simply close certain government departments that achieve very little, like the Department of Small Business Development. It has not developed even one small business in the eastern part of South Africa.' Rossouw also criticised what he called wasteful expenditure, including the presidential motorcade. 'Why do we need 11 vehicles and several motorbikes in the presidential motorcade?… It's unnecessary.' He further pointed out the financial drain of state-owned enterprises, especially the South African Airways (SAA). 'I said a decade ago that the government must give SAA away. It will not fly…The government has this strange ideological idea that it needs to be aligned with these enterprises, but we're now paying the price.' However, Rossouw said he believes the budget can only pass if it has the necessary political buy-in. 'One thing I want to see in this budget is a clear plan to stimulate economic growth,' he said. 'We need faster economic growth to get the country's unemployment crisis under control.' 'We really need to start thinking outside the box. We urgently need to get the economy going,' he added. IOL Politics
IOL News
19-05-2025
- Business
- IOL News
S&P infers South Africa's debt levels could average 80% of GDP, surpassing estimates
Finance Minister Enoch Godongwana will table the National Budget Review for the third attempt in Parliament on Wednesday after tensions within the Government of National Unity coalition over an increase in value-added tax (VAT) rates led to the budget being amended and re-tabled three times. Image: File S&P Global Ratings has warned that South Africa's general government debt could remain high, averaging an unprecedented 80% of gross domestic product (GDP) in the three years to 2028. This would be much higher than the National Treasury's estimate of an all-time high debt-to-GDP of 76.2% in the 2025/26 fiscal year. Finance Minister Enoch Godongwana has noted the need to avoid a notable rise in borrowing projections, with 2025/6 likely at 76.4% of GDP, 2026/27 at 76.1%, 2027/28 75.9 and 2028/29 at 75.3%. S&P on Friday, however, said public debt levels will remain elevated than expected given expenditure and revenue pressures, but said the government will continue its fiscal consolidation efforts. "We expect general government debt, net of liquid assets, will average 80% of GDP in fiscal 2025-2028. This is slightly above government estimates, which forecast debt peaking at 76% of GDP in fiscal 2025 and then falling to 74% by fiscal 2028," S&P said. "However, debt levels would be slightly higher without the government's tapping of the Gold and Foreign Exchange Contingency Reserve Account for R150 billion (2% of GDP) over fiscal 2024-2026. Debt servicing costs are a sizable fiscal burden. We expect interest costs will average 20% of government revenue over fiscal 2025-2028." Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. 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Advertisement Next Stay Close ✕ S&P also said that although general government debt stocks and refinancing needs remained sizable, deep domestic capital markets and increasing concessional financing from multilateral institutions (from a low base) provided adequate funding sources for the government. Nevertheless, it said this remained lower than that of peers such as Brazil, Mexico, and Turkiye. "We think banks can continue absorbing government debt. We expect foreign currency debt to increase modestly with potential Eurobond issuances and concessional financing from international financial institutions such as the World Bank and African Development Bank, but the bulk of fiscal financing will be undertaken in the domestic market," it said. FNB economists on Friday said the government must still demonstrate a credible pathtowards fiscal consolidation in the face of these challenges. However, they said there was a growing risk that the primary surplus, government's key anchor for stabilising debt, will be under significant pressure. "As a result, public debt may peak at a higher level than the 76.2% of GDP projected for 2025/26 in the 12 March budget," said FNB. "Our current baseline view incorporates these risks and is reflected in our sovereign rating outlook, which suggests that an upgrade by S&P Global of South Africa's local and foreign currency ratings to BB and BB+ may be delayed until next year." The ratings agency on Friday maintained South Africa's subinvestment status, affirming the country's long term foreign and local currency debt ratings at 'BB-' and 'BB', respectively, with a positive outlook. S&P said the positive outlook reflected the potential for stronger growth than it currently expected, despite trade- and tariff-related headwinds, alongside government debt consolidation, 'if the coalition government can accelerate economic and fiscal reforms while addressing infrastructure pressures'. It added that the ratings on South Africa benefited from the country's sizable and sophisticated financial system that provides a deep funding base for the government. S&P said the country also has relatively strong institutions, with good checks and balances, particularly its central bank, the South African Reserve Bank. However, the ratings were constrained by relatively low GDP per capita and low GDP growth rates, as well as sizable fiscal deficits and high government debt. S&P lowered its economic growth forecast for South Africa while expressing cautious optimism regarding the country's reform initiatives and efforts towards fiscal consolidation, even amid ongoing tensions within the coalition government. S&P is now expecting South Africa's GDP growth to rise to an average of 1.5% over 2025-2028 after a subdued 0.6% in 2024, but cautioned that ongoing logistical bottlenecks and global tariff-related pressures will constrain economic activity. 'We expect real GDP growth to pick up slightly to 1.3% this year from 0.6% in fiscal 2024, as more private sector-driven electricity supply comes onstream, and last year's drought was not repeated. But growth will be limited by potential US tariffs and global tariff-related risks, both via direct and secondary effects such as slowing demand from China for key commodities,' it said. Investec chief economist Annabel Bishop concurred on Friday that 2025 was likely to see GDP growth of 1.3% year-on-year now, revised down from 1.8% at the start of the year, while National Treasury forecast of 1.9% in March was likely to be revised down. 'The downwards revisions to growth, particularly for 2025 Treasury is likely to account for some of the likely very slight lift in the gross debt to GDP ratios but, stronger GDP growth, of 3.0%+ y/y, is needed for sustainable state finances,' Bishop said. 'The National Treasury having indicated it is planning a conservative, prudent budget, financial markets should not have a negative reaction, and nor should the credit rating agencies, although the latter will point to the constraint of weak growth.' Visit:
IOL News
17-05-2025
- Business
- IOL News
S&P Global revises South Africa's growth forecast down but remains optimistic on reforms
Finance Minister Enoch Godongwana will table the National Budget Review for the third attempt in Parliament on Wednesday after tensions within the Government of National Unity coalition over an increase in value-added tax (VAT) rates led to the budget being amended and re-tabled three times. Image: File S&P Global Ratings has lowered its economic growth forecast for South Africa while expressing cautious optimism regarding the country's reform initiatives and efforts towards fiscal consolidation, even amid ongoing tensions within the coalition government. This comes as the government has launched the second phase of "Operation Vulindlela," which goes beyond improving energy and infrastructure to address local government issues and enhance digitalization of the economy. The ratings agency on Friday maintained South Africa's subinvestment status, affirming the country's long term foreign and local currency debt ratings at 'BB-' and 'BB', respectively, with a positive outlook. S&P said the positive outlook reflected the potential for stronger growth than it currently expected, despite trade- and tariff-related headwinds, alongside government debt consolidation, 'if the coalition government can accelerate economic and fiscal reforms while addressing infrastructure pressures'. It added that the ratings on South Africa benefited from the country's sizable and sophisticated financial system that provides a deep funding base for the government. S&P said the country also has relatively strong institutions, with good checks and balances, particularly its central bank, the South African Reserve Bank (SARB). However, the ratings were constrained by relatively low gross domestic product (GDP) per capita and low GDP growth rates, as well as sizable fiscal deficits and high government debt. Finance Minister Enoch Godongwana will table the National Budget Review for the third attempt in Parliament on Wednesday after tensions within the Government of National Unity coalition over an increase in value-added tax (VAT) rates led to the budget being amended and re-tabled three times. However, S&P said the budget was likely to be passed without the earlier planned increase in the VAT rate, as well as with broadly commensurate cuts to departmental expenditure allocations, which will counterbalance the loss of the planned VAT revenue increase. 'Overall, over the medium term, we expect the government to continue efforts toward its planned fiscal consolidation, though downside risks to implementation remain,' S&P said. S&P is now expecting South Africa's GDP growth to rise to an average of 1.5% over 2025-2028 after a subdued 0.6% in 2024, but cautioned that ongoing logistical bottlenecks and global tariff-related pressures will constrain economic activity. 'We expect real GDP growth to pick up slightly to 1.3% this year from 0.6% in fiscal 2024, as more private sector-driven electricity supply comes onstream, and last year's drought was not repeated. But growth will be limited by potential US tariffs and global tariff-related risks, both via direct and secondary effects such as slowing demand from China for key commodities,' it said. 'We forecast a slight rebound in growth from 2024 levels (but lower than our November forecast) of 1.5% on average over fiscal 2026-2028, partly supported by likely lower interest rates, as well as the recent establishment of a two-pot retirement system that allows people to partially withdraw funds from their retirement accounts, which could boost consumption.' Despite this, S&P is forecasting gross general government debt to remain high, averaging 80% of GDP in fiscal 2025-2028, higher than the National Treasury's estimate of an all-time high of 76.2% of GDP in 2025/26. In response to the S&P rating, the National Treasury said it was committed to a balanced fiscal strategy. 'Government's growth strategy will continue to focus on maintaining macroeconomic stability to reduce living costs and grow investment, executing reforms to promote a more dynamic economy, building state capability in core functions and supporting growth-enhancing public infrastructure investment. 'The fiscal strategy continues to strike a balance between stabilising the public finances, reducing risks in the fiscal framework, encouraging economic growth and supporting low income and vulnerable households.' BUSINESS REPORT
