Finance Minister Enoch Godongwana presented South Africa’s 2025 Budget, which includes a VAT increase, significant allocations for social grants, health care, and public infrastructure, as well as reforms aimed at enhancing spending effectiveness.
In a recent presentation to Parliament, Finance Minister Enoch Godongwana unveiled South Africa’s 2025 Budget following a contentious meeting among Cabinet ministers regarding a proposed VAT increase. This presentation had been postponed earlier due to disagreements within the Government of National Unity concerning the 2% VAT increase which was a point of contention.
Revenue and Tax Proposals include a proposed VAT rate increase by 0.5 percentage points for both the 2025/26 and 2026/27 fiscal years, bringing the total VAT rate to 16%. The Budget does not accommodate inflationary adjustments to personal income tax brackets, rebates, or medical tax credits. These fiscal measures are expected to generate R28 billion in the 2025/26 fiscal year and R14.5 billion in 2026/27, with an additional R3.5 billion allocated to the South African Revenue Service this year and R4 billion over the medium term.
Key Spending Priorities entail an additional R232.6 billion for vital programs throughout the medium term. Provinces are set to receive R2.4 trillion under the Medium-Term Expenditure Framework (MTEF), with local government equitable shares increasing from R99.5 billion to R115.7 billion by the 2027/28 fiscal year. The public sector wage agreement is projected to cost an extra R7.3 billion in 2025/26, while R10 billion will be allocated to enhance Early Childhood Development subsidies.
Health spending is anticipated to rise significantly from R277 billion to R329 billion by 2027/28, and social grants will receive increases: old age and disability grants will rise by R130, child support by R30, and foster care by R70. Furthermore, the COVID-19 Social Relief of Distress program will be extended for an additional year, with R35.2 billion allocated. Defense and correctional services will see funding of R9.4 billion.
Infrastructure Investment will total R1 trillion over the next three years, specifically R402 billion for transport and logistics, R219.2 billion dedicated to energy infrastructure, and R156.3 billion for water and sanitation projects. New public-private partnership regulations will take effect on June 1, 2025, and the Budget Facility for Infrastructure will undergo reconfiguration to facilitate multiple bid windows, with the first infrastructure bond expected to be issued in the 2025/26 fiscal year.
State Capability and Budget Reforms highlight initiatives led by the Treasury aimed at enhancing spending effectiveness and efficiency. This includes auditing “ghost workers” within national and provincial departments and enacting the recommendations from a conditional grant review. Additionally, R1.7 billion has been allocated for potential future disasters and R4 billion dedicated to addressing recovery backlogs.
The 2025 Budget of South Africa emphasizes vital spending on health, education, and infrastructure, alongside a controversial VAT increase to enhance government revenue. Additional funding for social grants and public services demonstrates the government’s commitment to easing financial burdens on its citizens. Infrastructure investments signal a move towards long-term growth and sustainability, while efforts to improve state capabilities aim to ensure efficient resource allocation.
Original Source: allafrica.com
