By Thebe Mabanga
In the end, Finance Minister Enoch Godongwana had to make do with what limited tools and funds he has.
In an unprecedented budget cycle, he had an impossibly wide range of demands to satisfy, starting with the handful of parties that chose to renegotiate with him, and pressure from the two, the DA and EFF, that headed to court to fend off the VAT increase.
With the scrapped VAT increase creating a R65 billion revenue hole over the medium term and faced with weak economic growth and little room to borrow more, Godongwana had to increase the general fuel levy for the first time in three years.
He also raised sin taxes above inflation, and pinned his hopes that the SA Revenue Service collects R20 billion more and economic reforms pay off. SARS will receive an additional R7,5 billion over the medium term.
Treasury now forecasts GDP to grow by only 1.4% in 2025, down from 1,7%. But even that feels optimistic in the wake of US President Donald Trumps’s tariff storm.
Economic growth may fail to reach 1%, just as it has over the past two years
“Alongside structural economic reforms, sustainable fiscal policy will cushion the economy from shocks and lay the foundation for future prosperity,” Treasury says hopefully.
An analysis of the data shows that there was a R19,1 billion shortfall in revenue compared with the budget 2024 projections.
This was due to two main factors. The first was the unintended consequence of a push to renewables as both Eskom and the private sector needed less diesel to power generators as they got electricity from wind and solar plants.
The second factor was that fixed investment swung to a 3.6% contraction in 2024 compared with a projected increase of 3.7% in the 2024 budget. This meant that instead of imports increasing by 1.9%, they in fact fell by 5.3%, which reduced import duties and VAT.
“This is not an austerity budget,” Godongwana was at pains to point out on Wednesday.
“It increases non-interest expenditure by an average of 5.4% over three years. In real terms, this is 0.8% growth,” he said.
He argued that it was also a “redistributive budget” as it directed 61 cents of every rand of consolidated, non-interest expenditure towards the social wage.
“This is money that will be spent to fund free basic services like electricity, water, education, healthcare, affordable housing, as well as social grants for those in need.” he said to mild applause.
Godongwana pointed out that he has only cut the planned increase in spending, not actual spending.
Instead of adding R232 billion over the next three years, he would now add R180 billion.
With the VAT increase gone, the first to go was widening the net of zero-rated goods. Godongwana kept the old age grant increase of R130 by October this year, which was ostensibly put in place to cushion the blow of the VAT hike.
The civil service package and its sweetener remain intact, with a 5.4% spending increase, an allocation of R9.5 billion for teaching posts as well as an increase of R 20.8 billion over three years to employ 800 community service doctors.
The R11 billion to get civil servants over 55 to retire early has been reduced by R5,5 billion.
The R1 trillion infrastructure package also remains untouched from the February budget. Infrastructure is a key source of driving growth to the 3% target hoped for in the medium term.
The minister devoted considerable time to efforts to fight corruption, which he said has the unanimous backing of his cabinet colleagues to shield whistleblowers. He reported on progress in recovering ill-gotten gains, with R8 billion recovered state capture cases alone.
The ANC welcomed the budget, saying it was a product of consultation, rather than court orders.
“These engagements laid the foundation for a fiscal framework that seeks to balance the competing needs of the state whilst advancing inclusive development,” it said.
“The allocation of 61 cents of every rand spent towards social spending is also a welcome development, reflecting a firm commitment to equity and social protection.”
The lead party in the GNU noted and praised much of what it has presumably agreed to.
But none of what the ANC says explains whose idea and what was the rationale for the 2% VAT increase, or what exactly was its intended end game? Especially given that it would hurt the party at the polls.
The EFF, victors of the parliamentary process of the budget, dismissed it as “weak, misguided and utterly disconnected from the lived reality of South Africans”.
“It is a budget that ignores the worsening unemployment crisis, fails to address poor economic growth and continues the failed orthodoxy that has plunged our country into austerity, despair, and underdevelopment.”
The EFF pointed out that Treasury has ignored all proposed alternatives from all political parties, including the eight the ANC negotiated with.
“The VAT increases have simply been substituted with austerity,” the party said.
It pointed out that the absence of both President Cyril Ramaphosa, who was in the United States, and Deputy President Paul Mashatile, who was in France, saying this “forms part of a broader campaign to depoliticise the budget and shield the National Treasury from democratic scrutiny and public accountability”.
The budget could not be postponed further because the National Council of Provinces will process it on 30 July, which is the end of the four-month period allowed by the Public Finance Management Act. If it had been postponed, departments would only have access to 10% of their budget, which would not cover the wage bill.
The EFF called the budget the “technocratic betrayal of the people” and attacked the refusal to adjust tax brackets for inflation.
Cosatu welcomed the budget and described the scrapping of VAT as “a positive moment in our democratic evolution”.
However, it regretted the decision not to extend VAT exemptions for additional food items or provide further fuel price relief.
“We urge government to pursue additional measures to cushion indigent households from poverty, in particular expanding free electricity and water.”
The DA said it cautiously welcomed the budget and claimed credit for VAT victory through its court action.
“Overall, we see this Budget Speech as a turning of the tide toward growth and investment. It is turning away from unchecked government spending funded by South African taxpayers.”
It was pleased that there were new bailouts for state-owned enterprises.
Professor Raymond Parsons of the North-West University described the budget as “pragmatic under the circumstances”.
That is the best Godongwana could be.
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