Finance Minister Enoch Godongwana presented South Africa’s 2025 Budget, featuring a VAT increase, significant spending in health and social sectors, and a R1 trillion investment in infrastructure. Key allocations include support for early childhood development and extensions for COVID-19 relief. The budget also seeks to enhance spending efficiency through state capability reforms.
Cape Town witnessed Finance Minister Enoch Godongwana unveil South Africa’s 2025 Budget to Parliament, following an intense Cabinet meeting that emphasized the contentious nature of a proposed 2% VAT increase. This presentation was initially delayed amidst disputes among parties within the Government of National Unity (GNU) regarding tax hike measures.
Among the key proposals, there is a planned increase in the VAT rate by 0.5 percentage points in both the 2025/26 and 2026/27 fiscal years, ultimately raising it to 16%. Notably, there will be no adjustments for inflation concerning personal income tax brackets, rebates, or medical tax credits. These tax measures are projected to generate R28 billion in the 2025/26 fiscal year and R14.5 billion in the subsequent year. Additionally, the South African Revenue Service (SARS) has been allocated R3.5 billion this year, with an increase of R4 billion over the medium term.
On the spending front, R232.6 billion has been earmarked for essential programs throughout the medium term, along with provinces receiving R2.4 trillion under the Medium-Term Expenditure Framework (MTEF). The local government equitable share is set to rise significantly, increasing from R99.5 billion to R115.7 billion by 2027/28. The agreement terms regarding public sector wages are anticipated to incur an additional cost of R7.3 billion in 2025/26. In support of early childhood development, R10 billion will be allocated to boost subsidies, while health expenditure is expected to grow from R277 billion to R329 billion by 2027/28. Furthermore, social grants will see an increase with the old age/disability grant rising by R130, child support by R30, and foster care by R70. The COVID-19 Social Relief of Distress program has been extended for one more year, with R35.2 billion assigned for this purpose, alongside R9.4 billion for defense force and correctional services.
A significant investment of R1 trillion has been proposed for public infrastructure over the next three years, with R402 billion designated for transport and logistics, R219.2 billion for energy infrastructure, and R156.3 billion for water and sanitation projects. New public-private partnership (PPP) regulations will take effect from June 1, 2025, while the Budget Facility for Infrastructure has been reconfigured to accommodate multiple bid windows. The issuance of the first infrastructure bond is anticipated in the 2025/26 budget.
In terms of state capability and budget reforms, the Treasury is set to spearhead initiatives aimed at enhancing the effectiveness and efficiency of spending. Steps include auditing for “ghost workers” within national and provincial departments as well as enforcing recommendations from the conditional grant review. Furthermore, R1.7 billion has been allocated for future disasters, and R4 billion is designated for addressing recovery backlogs.
The 2025 Budget of South Africa, presented by Finance Minister Enoch Godongwana, outlines critical tax increases and spending priorities aimed at enhancing national infrastructure and supporting essential services. Key measures include a VAT rate increase and significant funding allocations across various sectors such as health and public infrastructure. The budget reflects a comprehensive approach to address fiscal challenges while aiming to optimize government spending efficiency. Overall, it showcases the Government’s commitment to fiscal reform and social welfare amidst ongoing economic pressures.
Original Source: allafrica.com
