‘This is not an austerity budget’ – Godongwana

Despite dropping his controversial value-added tax (Vat) hike plans, which would have given government up to R75 billion more, Finance Minister Enoch Godongwana declared “this is not an austerity budget” in Cape Town on Wednesday.

Tabling the latest iteration of the 2025 SA Budget – which is regarded as a “done deal” – he said, despite lower-than-expected spending growth, the budget “increases non-interest expenditure by an average of 5.4% over three years”.

This is compared to 5.6% growth in expenditure originally proposed in the March budget; however, that was linked to the proposed 0.5 percentage point Vat increase plan that has been canned.

“The reality is that the decision to do away with the Vat increase, without a viable alternative source of revenue, significantly reduced our ability to fund additional government programmes and projects to the extent we had deemed necessary,” Godongwana said on Wednesday.

“Nevertheless, this budget supports sustainable finances, the social wage and investments in economic growth … It is also a redistributive budget. It directs 61 cents of every rand of consolidated, non-interest expenditure towards the social wage,” he added.

The finance minister conceded that the Vat hike debacle had “created some uncertainty”. However, he said it was “a vital debate no doubt” in cabinet and SA’s new government of national unity (GNU).

Clarity

“There is clarity now: Vat will remain at 15%. This decision reflects our commitment to listen to South Africans, and to all the political parties represented in this house,” he said.

“Today’s budget has taken these views into account. This is what the past two months have provided: valuable lessons that will inform how we manage the budget process moving forward,” said Godongwana.

The Vat controversy threatened the stability of the GNU, with the DA taking the matter to court earlier this year – a move backed by the EFF. Most parties opposed the increase, first envisioned by Godongwana as a two-percentage-point hike in his ‘untabled’ February budget. The DA is the ANC’s main partner in the GNU.

Read:
Godongwana caves: Vat hike canned
Court halts proposed Vat hike

“We have achieved this difficult balance by reducing additional spending over the medium term by R68 billion,” Godongwana confirmed in his Budget 3.0 speech.

“These reductions are primarily aimed at provisional allocations not yet assigned to votes. Simply put, this means baseline allocations across all spheres of government remain largely unchanged.

“Instead, the size of the proposed increases to allocations is reduced, in line with what we can afford,” the finance minister added.

“Our focus going forward is threefold: balancing the budget through spending efficiencies, strengthening revenue collection, and giving expression to the National Development Plan,” said Godongwana.

Budget 3.0 projects consolidated spending growth averaging 5.4% annually, from R2.4 trillion in 2024/25 to R2.81 trillion in 2027/28. The (unapproved) budget in March proposed spending growth of 5.6%; thus, the lower increase will see spending ‘reduced’ by around R200 billion over the medium-term three-year period.

Government has managed to keep its budget deficit forecast in check at -4.6% of GDP for 2025/26 – at the same level as the March budget proposal. It is expected to reduce to 3.5% in 2027/28.

However, government debt as a percentage of GDP is expected to increase to 77.4% in 2025/2026, compared to 76.2% in the March budget. The latest forecast represents the highest point of SA’s debt-to-GDP ratio since 1994, according to Treasury Director-General Duncan Pieterse.

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