SA Budget: VAT hike, massive infrastructure spend, and debt peaks

Key topics:.VAT increased by 1% over two years to fund public services.R1.03 trillion allocated for infrastructure over the next three years.Government debt peaks at 76.2% of GDP, with debt-service costs rising..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..*By Monique Vanek.Below are the highlights of South Africa's 2025 budget announced by Finance Minister Enoch Godongwana in Cape Town on Wednesday..Many of the proposals – including those on infrastructure investment and state power utility Eskom Holdings SOC Ltd. – are unchanged from the plan that was scrapped last month after a disagreement within the coalition government over a proposed value-added tax increase..Taxes.The National Treasury will hike the VAT for the first time since 2018 to raise an additional 42.5 billion rand ($TK billion) over the next two fiscal years. The increase will fund key public services such as education, health and commuter rail. The rate will be lifted by 0.5 percentage points on May 1 and another half point on April 1, 2026, to reach 16%.To ease the impact on poor households, above-inflation increases in welfare grants will be implemented, more food items will be exempted from VAT and the fuel levy will be left unchanged..Infrastructure Investment.Over the next three years, 1.03 trillion rand will be allocated to public infrastructure including roads, energy, water and sanitation. The budget adds 46.7 billion rand to infrastructure plans over the medium-term.An agreement to create a single structure overseen by the Treasury to coordinate state participation in project preparation and planning, public-private partnership funding and credit guarantees will be signed this year.A performance-based grant will be made available to reward local government entities that supply services such as water and sanitation for improving their institutional capability, financial sustainability and operational performance..Forecasts.The consolidated budget shortfall is forecast at 5% of gross domestic product for the current fiscal year through March, unchanged from October.The shortfall is seen at 4.6% in 2025-26, narrowing to 3.8% in 2026-27 and 3.5% by 2027-28.Spending of 2.59 trillion rand is projected for 2025-26. Revenue collection is seen at 2.22 trillion rand.The Treasury expects a primary budget surplus – where revenue exceeds non-interest spending – of 0.5% of GDP in the current year through March and 0.9% of GDP in 2025-26. That ratio increases to 1.6% and 2% over the following two years..Debt.Over the next year, the Treasury expects to reach two milestones in rebuilding public finances. It foresees public debt peaking in 2025-26 at 76.2% of GDP because of the growing primary surplus. It also anticipates debt-service costs, which consume 22% of revenue, to peak at 21.7% in 2024-25 before easing.The gross borrowing requirement for the current fiscal year is seen at 415.7 billion rand. That compares with 424.7 billion rand envisaged in October.The borrowing requirement is expected to grow to 582 billion rand in 2025-26, including payments to Eskom of 80.2 billion rand. It is seen falling to 441 billion rand the following year, and then climbing to 600 billion rand in 2027-28.A credit guarantee vehicle is being prepared to mobilise private capital by de-risking critical projects in the energy, transport and water sectors. The arrangement is projected to have initial capital of $500 million.Eskom's final 70 billion-rand debt takeover will be replaced with a 40 billion-rand advance in 2025-26 to redeem loans maturing in April 2026 and 10 billion rand in 2028-29 for debt maturing in May 2028.While a debt-stabilising primary surplus will anchor fiscal policy over the rest of the decade, the government has initiated discussions on potential longer-term fiscal anchors..Growth.Economic growth is seen averaging 1.8% over the next three years, the same as projected in October. Logistical challenges, including the nation's under-performing railways and pots, remain a constraint on output..Revenue.Godongwana told reporters that the South African Revenue Service would receive an allocation of 4 billion rand, in addition to the 3.5 billion that had been set aside for the agency over the next three years. He didn't provide further details..Spending.Total consolidated government spending is expected to grow at an average annual rate of 5.6% to 2.83 trillion in 2027-28 from 2.4 trillion rand in the year through March 2025.New allocations include:46.7 billion rand for infrastructure investments35.2 billion rand to extend the Covid-19 social relief of distress grant until March 202623.4 billion rand to cover the costs of a three-year pay agreement reached with state employees8.2 billion rand to increase welfare grants by more than inflation5 billion rand to fund a peacekeeping mission in the Democratic Republic of Congo.Calendar Year 202520262027GDP growth (%)1.91.71.9October forecast (**)(1.7)(1.7)(1.9)CPI average (%)4.34.64.4 (4.4)(4.5)(4.5)Current-account gap (% of GDP)-2.3-2.4-2.6 (-2.1)(-2.2)(-2.5)Household spending growth (%)1.91.51.7 (1.8)(1.7)(1.9)Government spending growth (%)3.8-0.10.3 (0.9)(-0.4)(-0.1)Export growth (%)3.43.23.1 (3.1)(3.1)(3.1)Import growth (%)5.73.12.7 (4.1)(2.8)(3.0).(**) Numbers in double brackets show Treasury's October forecasts.Source: National Treasury.Fiscal Year2024-252025-262026-272027-28Consolidated budget balance (% of GDP)-5.0-4.6-3.8-3.5February draft budget estimate (*)(-5.0)(-4.4)(-3.8)(-3.4)October forecast ((**))((-5.0))((-4.3))((-3.6))((-3.2))Revenue (trillion rand)2.0292.2222.3772.520 (2.027)(2.248) (2.390)(2.534) ((2.022))((2.167))((2.314))((2.472))Expenditure (trillion rand)2.4042.5922.7032.835 (2.404)(2.601)(2.713)(2.845) ((2.395))((2.510))((2.624))((2.767))Government gross borrowing (billion rand)415.7582441600 (418.3)(564.4)(438.7)(596.6) ((424.7))((602.7))((455.0))((614.9))Gross debt (% of GDP)76.176.275.975.1 (76.0)(76.1)(75.7)(74.8) ((74.7))((75.5))((75.3))((75.0))Net debt (% of GDP)73.174.674.473.9 (73.1)(74.3)(74.1)(73.5) ((72.6))((74.3))((74.2))((73.8)).* Numbers in brackets show February 2025 draft budget forecasts .** Numbers in brackets show Treasury's October forecasts .Source: National Treasury.Read also:.2025 Budget shake-up: Winners, losers, and what it means for youFinance Minister Enoch Godongwana's budget speechSouth Africa scales back VAT hike in bid to end budget standoff.© 2025 Bloomberg L.P.

SA Budget: VAT hike, massive infrastructure spend, and debt peaks

Related Stories

National Treasury Post-Budget Breakfast: Godongwana defends growth plan as debt stabilises and tax hikes retreat

TCS Editors on Budget 2026: A middle ground between utter pragmatism and complete denial

Budget 2026: Godongwana’s Masterstroke — A Tax-Cutting Surprise from the Parliamentary Lockup

Budget 2026 in-depth: Details we expected to see — and what happened