Finance minister Enoch Godongwana delivers his 2025 budget speech in Cape Town.
South Africa’s latest budget speech has sparked debate over the government’s role in economic growth, with Finance Minister Enoch Godongwana outlining key fiscal policies while experts warn against austerity during an economic downturn.
The finance minister proposed a phased VAT increase, beginning with a 0.5 percentage point rise from the current 15% on May 1, 2025, followed by another 0.5 percentage point increase in 2026. This measure aims to boost revenue but could place additional financial strain on consumers.
However, the Democratic Alliance (DA), the second-largest party in the government of national unity (GNU), rejected the “chaos budget”.
“The ANC VAT budget doesn’t have a majority, and the DA won’t give it one. It is now up to the ANC to fix the mess it has created,” the party said in a statement.
Social grants saw modest increases, with old age and disability grants rising by R130, child support grants by R30, and foster care grants by R70. Additionally, the Social Relief of Distress (SRD) grant has been extended until March 2026 and will be restructured into a permanent basic income support mechanism.
Consumers will also feel the pinch as excise duties on alcohol and tobacco rise between 4.75% and 6.75%, effective immediately. This means a packet of 20 cigarettes will now cost R1.04 more.
In a move to ease the burden on taxpayers, Eskom’s debt relief package has been revised down from R70 billion to R50 billion, saving the state R20 billion. Meanwhile, Prasa will receive R19.2 billion for rail infrastructure upgrades, a much-needed investment in public transport.
Notably, the sugar tax remains unchanged, providing some relief to the struggling sugar industry.
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Government’s role in the economy
The budget speech has reignited discussions on the government’s role in economic recovery. Thoko Madonko, a researcher at the Public Economy Project, Southern Centre for Inequality Studies at Wits University, emphasised the need for a proactive state-led approach to economic growth.
“It’s absolutely critical that we go back to basics and ask, ‘what is the primary purpose of the government’s budget? Why do we have it and what can it do for us?’ There’s a huge amount of contestation over what the role of the government’s budget is in the economy, in terms of addressing growth, poverty and inequality,” Madonko stated, in an interview with Salaamedia.
She further argued against austerity measures in the current economic climate, referencing Keynesian economic principles:
“We are in a slump and John Maynard Keynes said it is the boom, not the slump, when you do austerity. You don’t do austerity in a slump. We shouldn’t be thinking about a primary balance when we need to boost our economy.”
Madonko also criticized the reliance on private sector investment, stating: “The problem is they are hoping the private sector will deliver this R1 trillion worth of investment. What we actually need is state spending to account for infrastructure development.”
A significant point of contention remains the government’s approach to infrastructure and public sector employment. Madonko highlighted the necessity of viewing public spending as an investment rather than a cost:
“When you invest in houses, in hospitals, in clinics, in schools and you think of the public sector wage bill not as a cost but as an investment, then you will see much-needed growth. We have so much untapped capacity in this country and the state can step in; the private sector is not going to do it.”
