Budget 2025: taxing Peter to pay off Paul

South Africa stands at an unprecedented fiscal and political crossroads. The 2025 Budget, finally tabled by Finance Minister Enoch Godongwana on 12 March, has ignited a political crisis. For the first time in South Africa’s democratic history, a national Budget lacks guaranteed majority support in Parliament. The Democratic Alliance (DA) has refused to rubber-stamp African National Congress (ANC) tax hikes, pushing instead for spending cuts and market-friendly structural reforms. This standoff hasn’t only heightened tension within the Government of National Unity (GNU), but raised fundamental questions about its viability.

The 2025 Budget reflects the government’s struggle to balance fiscal prudence with the pressing social needs of a country plagued by economic stagnation, crumbling infrastructure, and deepening poverty. This Budget comes at a time when South Africa can least afford policy paralysis. The recent cancellation of R8.5 billion a year in aid from the United States (US), the imminent loss of tariff-free access to the US export market under the African Growth and Opportunity Act, and sky high public-sector debt levels have left our economy in a precarious position. Though encouraging private sector-led investment growth remains our only viable path to prosperity, the ANC has regrettably chosen to focus on plugging holes rather than implementing the bold economic reforms the country desperately needs.

Spending priorities: living beyond our means

• The social wage – encompassing spending on education, health, housing, and social grants – continues to dominate expenditure at an unsustainable 50.9% of the total Budget;
• Despite promises of fiscal restraint, the bloated government wage bill remains too high, and is expected to grow further by 4.5% annually over the medium term;
• Debt servicing costs, now the fastest growing budget item, are consuming an alarming 16.5% of total expenditure, crowding out productive investment;
• Meanwhile much-needed infrastructure investment receives only 75% of what we spend servicing our debt;
• However, Treasury did find some spare change for South Africa’s International Court of Justice team, allocating it an additional R37.2 million, bringing the total expenditure on the case against Israel to R130 million and counting.

Revenue measures: squeezing the middle and working class

• Value-added tax increases of 0.5% this year and another 0.5% next year will have a disproportionate impact on poorer South Africans despite attempts to cushion the blow through zero-rating additional essential goods;
• In another blow to the middle-income households, for the second consecutive year, personal income tax brackets remain unadjusted for inflation, effectively a stealth tax increase;
• Predictably, you won’t be able to drown your sorrows without paying more taxes on alcohol and cigarettes;
• And in a concerning development for some in our community, the South African Revenue Service has announced aggressive plans to target withdrawals from foreign pensions.

Structural reforms: promises without progress

• The government continues to champion Private Public Partnerships as the solution to our infrastructure crisis. Yet even priority initiatives, including Eskom’s long promised restructuring, have been repeatedly delayed. It’s starting to feel a bit like waiting for Mashiach … may they come speedily in our days;
• In a similar vein, the minister’s assurances about the government’s continued fight to cut red tape rings hollow when the International Monetary Fund recently ranked South Africa’s business environment below all 47 Organisation for Economic Co-operation and Development countries; and
• The promise of a newly established committee to identify wasteful, inefficient, and underperforming programmes is to be welcomed, but it comes after a whopping 240 similar spending reviews undertaken by the government since 2013, all of whose findings are still waiting to be implemented.

The Budget faces an uncertain path to approval, with the ANC lacking sufficient numbers to pass it alone.

Its first hurdle comes in the Standing Committee on Finance, where contentious debate and possible amendments await. The committee’s composition – ANC (5); DA (2); Inkatha Freedom Party (IFP) (1); ActionSA (1); Economic Freedom Fighters (EFF) (1); and uMkhonto weSizwe (MK) (2) – includes controversial figures like former “weekend special” Finance Minister Des van Rooyen alongside an ANC representative with the telling middle name “Soviet”. With the DA opposed, the support of ActionSA and the IFP become decisive.

Should the relevant committees be cleared, the Appropriation Bill and related tax legislation must secure majority approval in the National Assembly. Here, all smaller GNU partners – including the more fiscally conservative Patriotic Alliance; IFP; and Freedom Front Plus – together with support from opposition party ActionSA could potentially provide the ANC with the 201 plus votes needed to just get the Budget over the line without DA, MK, and EFF backing.

The process then moves to the National Council of Provinces, where the more ANC-friendly composition probably ensures passage even without DA support. Finally, presidential signature would enact the Budget into law.

Should the Budget fail, the government would need to enact emergency appropriation measures to maintain essential services while negotiations continue, a scenario inviting further economic instability.

A decisive moment

South Africa can no longer afford political expedience over economic necessity. This Budget must be more than a stopgap, it must chart a credible path toward investment-led, sustainable growth. If the DA, ActionSA, Freedom Front Plus, and the IFP could only put their egos and personal rivalries aside, they could together leverage their united position to extract much-needed structural reform from the ANC that could fundamentally reshape South Africa’s economic trajectory. The coming weeks will define the future of the GNU, and with it, the future of South Africa’s economy.

• Michael Kransdorff is chief executive of the Institute for International Tax and Finance and a Harvard trained economist.