South Africa's 2025 Budget Speech: Revised Commitments Amid Fiscal Constraints

On 21 May 2025, Finance Minister Enoch Godongwana delivered a revised National Budget Speech to Parliament, following the initial tabling of the budget on 12 March 2025.

- by Lunga Nkosinathi Tshabalala

The revision was necessitated by significant political and public opposition to the proposed increase in Value Added Tax (VAT), a measure initially aimed at stabilizing debt and expanding fiscal space.

In response, the updated budget reflects a strategic realignment: balancing the demands of fiscal consolidation with the need to protect critical social spending and invest in growth-enabling infrastructure.

However, the revision has drawn sharp criticism from economists, fiscal experts, and global institutions for compromising the long-term sustainability of South Africa's public finances in favour of short-term political expediency.

From Revenue Expansion to Fiscal Recalibration

The originally proposed VAT increase—rejected amid broad political opposition and widespread public concern over its regressive impact—was expected to generate approximately R38.5 billion an additional revenue. VAT, while often criticised for its disproportionate effect on low-income households, is broadly recognised in economic theory as a relatively efficient and nondistortionary tax instrument (Diamond & Mirrlees, 1971).

South Africa's current VAT rate of 15% is notably lower than the OECD average. Countries such as the United Kingdom (20%) and Germany (19%) maintain higher VAT rates while simultaneously safeguarding equity through targeted social transfers and exemptions. By reversing the VAT increase, the government relinquished a revenue tool widely used in both developing and advanced economies to maintain fiscal buffers during economic downturns.

Plugging the Gap: Budget Cuts, Reallocations, and Borrowing