The 2025 Budget Speech, delivered by Finance Minister Enoch Godongwana, highlights key fiscal priorities amidst South Africa’s economic challenges. As the nation navigates coalition governance under the Government of National Unity (GNU), the postponement of the budget from 19 February to 12 March 2025 signals both the complexities of fiscal policy and the maturing of South Africa’s democratic discourse.
Ndumiso Kubheka, Award-winning Economist and Board Chair of The DaVinci Institute, provides an in-depth analysis of the budget’s implications, focusing on government spending efficiency, economic growth, and the critical balance between taxation and investment.
Smart Spending: The Key to Growth
According to Kubheka, the efficacy of government spending is not just a good idea—it is a strategic pathway to answering the growth question. The 2025 Budget outlines increased allocations for social development (R47.1 billion) and education (R11.2 billion), compared to R23.8 billion for economic development. While these investments are essential, economic development spending must be prioritised to expand long-term fiscal sustainability.
“Bold steps must be taken to unlock economic growth because fiscal stability depends on economic expansion. The reduction of important fiscal ratios such as debt-to-GDP is only possible if spending allocations are supported by sustainable growth,” Kubheka explains.
Taxation & Revenue Collection: A Balancing Act
The revised tax proposal to incrementally increase VAT by 0.5% in 2025/26 and another 0.5% in 2026/27 aims to raise R28 billion in additional revenue in the first year and R14.5 billion in the second. This tax adjustment is intended to finance key priorities such as healthcare and education. However, Kubheka warns that taxation policies must be carefully balanced against macroeconomic conditions to avoid unintended burdens on consumers and businesses.
“The optimal tax rates for South Africa must align with current economic conditions. Expanding the tax base through economic development is more sustainable than increasing tax rates, which may dampen consumer spending and business investment,” he says.
Additionally, the budget allocates R3.5 billion to enhance revenue collection, improving tax compliance and addressing illicit financial flows—critical measures for strengthening South Africa’s fiscal position. Kubheka highlights that progress in tackling the Financial Action Task Force (FATF) Greylist challenges will ultimately reduce borrowing costs in bond markets.
Foreign Direct Investment & Growth Targets
For South Africa to achieve a 5% GDP growth target and reduce unemployment, Kubheka emphasises the need for increased foreign direct investment (FDI). Currently, an additional 15% of GDP in fixed investment is required to reach this growth goal.
“South Africa’s fiscal and industrial policies must be designed to attract foreign investment. Without this, the long-term economic outlook will remain constrained,” Kubheka notes.
He further stresses that the soon-to-be-published Medium-Term Development Plan (MTDP) aims for 3% GDP growth over five years, contingent on improved government spending efficiency and effective policy implementation.
Governance & Accountability: A Critical Factor
Kubheka underscores the role of governance in ensuring that budget allocations lead to tangible economic benefits. Poor governance and inefficiencies within state institutions remain a significant concern.
“More attention must be given to the unseen cost of governance failures in key state organs. Preconditioned measures for accountability, transparency, and spending oversight should be followed up and reported on effectively to prevent leakages in the system,” he asserts.
Final Thoughts: Setting the Foundation for Growth
The 2025 Budget Speech lays out bold fiscal strategies, but Kubheka believes that the true test lies in execution. Sustainable economic growth, tax optimisation, increased FDI, and accountable governance will be essential in shaping South Africa’s financial future.
“If these foundations are set, the growth question for South Africa will be answered,” he concludes.
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