The South African Budget 3.0 – Summary
On May 21, 2025, Finance Minister Enoch Godongwana tabled South Africa’s revised Budget 3.0, a critical reworking of the February 2025 budget. This adjustment came amid a severe R75 billion revenue shortfall and growing political resistance to tax hikes, particularly a proposed VAT increase that was ultimately scrapped due to coalition tensions.
Key Highlights:
- No VAT Hike: The planned increase in Value-Added Tax was dropped after pushback from political allies, avoiding further strain on the cost of living.
- Fuel Levy Increased: To partially make up for the revenue gap, a fuel levy hike was introduced—16 cents more per litre of petrol and 15 cents for diesel, starting June.
- Budget Deficit and Debt: The deficit for 2025/26 is projected at 4.6% of GDP, with debt-to-GDP expected to peak at 77.4%, the highest since democracy in 1994.
- Spending Cuts: Expenditure will be reduced by over R69 billion over the next three years, with emphasis on controlling the public sector wage bill and cutting non-essential programs.
- Debt Costs: 22 cents of every rand collected will now go toward paying off interest on debt—an alarming signal of growing fiscal pressure.
- Social Welfare Maintained: Despite constraints, social grants will continue to rise, including old age and disability grants (now R2,315) and child support grants (R560).
- Healthcare and Infrastructure: The government pledged more funds to healthcare—especially for HIV/AIDS treatment—and reinforced its commitment to infrastructure development as a growth lever.
Economic Outlook:
Growth has been revised downward to 1.4% for 2025, with the government calling for more structural reforms and private-sector partnerships to stimulate investment and job creation.
Political Tensions:
The revised budget reflects a delicate political balance in South Africa’s coalition-led government, with parties sharply divided over austerity, tax policy, and spending priorities.
Conclusion:
Budget 3.0 is a pragmatic attempt to stabilize the economy without increasing the burden on ordinary citizens. However, its success depends on strict implementation, political cooperation, and revived economic growth.
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