In brief
- South Africa’s Finance Minister Enock Godongwana delivered the much-delayed 2025 Budget speech in Parliament on 12 March 2025. At the crux of the budget presentation was the reduction in the proposed VAT rate hike from the initial 2.0% to a revised 0.5% increase in both FY26 and FY27 budget years with effect from 01 May 2025, and 01 April 2026, respectively.
- Despite investor concerns, we think there is a high bar to any pushback of the fiscal framework during the parliamentary approval stage. Section 8 of the Money Bills Amendment Procedure and Related Matters Act (MBARMA) lays out the timeframe for the legislative approval of the fiscal framework.
- The effect of the proposed new taxes will be a cumulative net increase of ZAR 119.0bn in the FY26 – FY28 budget period, lower than the ZAR 182.4bn that had been penciled in the February 2025 budget speech. Alternatives to the proposed 0.5% VAT rise, which targets to raise ZAR 13.5bn in FY26 could have been increases in Personal Income Tax (PIT) and Corporate Income Tax (CIT) which could have been unpalatable, in our view.
- Although fractures have emerged around the tax proposals within the GNU coalition, the budget speech also signalled the ANC’s faction warming up to spending reviews to curb wastage and improve efficiency. We think these commitments show some convergence of thoughts around the fiscal framework amongst the GNU coalition partners.
- Refreshingly, the National Treasury published its fiscal anchor discussion document amidst ongoing debate on whether South Africa should formally adopt a fiscal anchor. With the debt expected to stabilize at 76.2% in FY26, we think that the adoption of a formal fiscal rule limit, more so a numerical fiscal (Type III) rule, will better finetune the fiscal framework.
- The National Treasury announced that its maiden infrastructure bond will be issued in FY26 between April 2025 and January 2026 once the appropriate vehicle has been set up. With domestic bond maturities projected at ZAR 303.7bn in FY28, up from ZAR 172.8bn in FY26, the authorities are keen on pursuing switch auctions to manage the gross borrowing requirement in future budget years.
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