FinMin Godongwana attempts budget 3.0

As South Africa gears up to unveil its revised 2025 budget, all eyes are on how the Treasury plans to close the funding gap without overly burdening a strained tax base or escalating borrowing. The National Treasury is set to present its third iteration of the budget, and expectations are high for striking a delicate balance between curbing borrowing and stimulating growth. Investec Chief Economist, Annabel Bishop, shed light on key expectations and strategies ahead of the budget presentation. Last year, the Treasury aimed to raise approximately $28 billion; however, recent fiscal developments have shown a revenue overrun with an estimated extra $8 billion collected. Looking ahead, with no adjustment for fiscal drag anticipated, taxpayers are likely to bear the brunt of increased taxes due to inflation adjustments. The Treasury may explore avenues like the fuel levy and expenditure cuts to boost revenue. The projected fiscal deficit stands at around 4.5%, with no plans to escalate borrowings. While expenditure cuts and limited VAT modifications are on the table, tax increases, particularly on the fuel levy, are probable. Corporate tax hikes and significant VAT adjustments seem unlikely due to growth and employment concerns. To enhance revenue inflows, improving tax collections is paramount. Bishop highlighted the potential of recovering an estimated $800 billion in unpaid taxes, emphasizing the need for additional resources and focus on non-compliant individuals. Enhanced tax collections could significantly alleviate fiscal pressures in the near term. Concerns loom over the budget's approval, with discussions spanning various political parties. Broad consensus is crucial for a successful passage of the budget, with potential revisions including a lower inflation target to spur economic growth. GDP growth forecasts have been revised downwards, with an estimated 1.3% growth rate for the current year. External and domestic factors, including logistical challenges in the mining sector, pose risks to economic expansion. In light of Transnet's ratings downgrade, borrowing projections and deficit trajectories must be carefully managed to avoid potential credit rating downgrades. Credit rating agencies anticipate borrowing to peak at 80% of GDP, factoring in state guarantees on entity debts. The outlook hinges on achieving sustained GDP growth to prevent economic disappointments and subsequent downward rating pressures. Wednesday's budget presentation remains eagerly anticipated, with hopes for a balanced approach that navigates fiscal challenges while fostering economic resilience. As stakeholders brace for potential tax adjustments and revenue enhancement measures, the budget's impact on South Africa's economic trajectory remains a focal point of scrutiny and anticipation.