When Enoch Godongwana stepped to the podium in the National Assembly chamber on May 21, 2025, the room held its breath. After weeks of public outcry over a proposed VAT hike, the Enoch Godongwana, South Africa’s Minister of Finance, delivered a surprise: the 15% value-added tax rate would stay. No increase. No phased rise. Just clarity. "There's clarity now," he said, his voice steady. "VAT will remain at 15%." It wasn’t just a fiscal tweak—it was a political reset. And for millions of households already stretched thin by rising food and fuel prices, it was a sigh of relief.
Why the Reversal Mattered
The original March 12 budget had proposed raising VAT from 15% to 15.5% in 2025/26, then to 16% the following year. The move, intended to plug a R61.9 billion revenue gap, sparked nationwide protests. Taxi drivers, small shop owners, and pensioners flooded social media with stories of how every extra cent at checkout hurt. The National Treasury received over 12,000 public submissions—many from low-income communities. "It wasn’t just about tax," said one Cape Town vendor in a televised interview. "It was about dignity. Can you pay for medicine and bread if your bread costs 50 cents more?" Godongwana acknowledged the pressure: "It created uncertainty. We listened." The reversal came after intense negotiations with all seven parties in the Government of National Unity. Even the Democratic Alliance, traditionally fiscally conservative, signaled support for the decision. The Financial and Fiscal Commission, an independent advisory body, had warned that a VAT hike could deepen inequality. The message was clear: revenue must be collected, but not at the cost of social stability.Where the Money Is Going—And Where It’s Not
With the VAT increase off the table, the government had to find other ways to balance the books. Total medium-term spending now stands at R6.69 trillion, down R68 billion from the March proposal. But here’s the twist: infrastructure got a massive boost. Over R1 trillion is now earmarked for roads, power grids, water systems, and digital connectivity—projects that could create jobs and boost productivity. "This isn’t just spending," said Annabel Bishop, Chief Economist at Investec. "It’s an investment in growth engines. The real question is whether implementation will match ambition." To make up for lost revenue, the budget injected R7.5 billion into the South African Revenue Service (SARS). The goal? To modernize systems, crack down on tax evasion, and improve compliance. Officials estimate this could yield at least R35 billion in additional revenue over three years. It’s a high-stakes bet: if SARS fails to collect, the deficit could widen again.Debt, Deficits, and the Long Game
Government debt is projected to stabilize at 76.2% of GDP in 2025/26—down from a peak of 78.5% in 2023/24. The consolidated budget deficit is expected to shrink to 3.5% by 2027/28, from 4.1% last year. That’s progress, but it’s fragile. South Africa’s economy grew just 0.8% in 2024. Unemployment hovers near 33%. The budget assumes modest growth returns. If it doesn’t, the math breaks.
What Comes Next?
The 2025 Budget Speech was delivered alongside two critical bills: the Appropriation Bill and the Division of Revenue Bill. Both must pass before June 30, or the government risks a partial shutdown. Until then, departments operate under Section 29 of the Public Finance Management Act—limited to 45% of last year’s spending in the first four months. That’s already causing delays in service delivery. The next major milestone is the Medium-Term Budget Policy Statement on November 12, 2025, at the Good Hope Chamber in Cape Town. There, Godongwana will table tax bills that could reshape everything from fuel levies to corporate taxes. Investors will watch closely. So will ordinary South Africans.The Bigger Picture
This budget wasn’t just about numbers. It was a test of whether South Africa’s fractured political system could still deliver on promises to the people. The decision to scrap the VAT hike was bold. It showed that public pressure still matters. But it also exposed the country’s deep fiscal vulnerability. Without growth, without SARS efficiency, without disciplined spending, the win could be short-lived."This undertaking is not insurmountable," Godongwana told MPs. "If we work together, stay focused, and persevere." But the real test isn’t in Parliament. It’s on the streets of Soweto, in the rural clinics of Limpopo, in the queues at the spaza shops. That’s where the true impact will be felt.
Frequently Asked Questions
How will keeping VAT at 15% affect low-income households?
Keeping VAT at 15% means essential goods like bread, maize meal, and basic medical supplies—already zero-rated—won’t become more expensive. For households spending over 40% of income on food and transport, this prevents an estimated R200–R300 monthly burden increase, according to the South African Institute of Race Relations. It also preserves the purchasing power of social grants, which cover nearly 18 million people.
Why did the government choose to invest in infrastructure instead of raising taxes?
Infrastructure spending is seen as a long-term economic multiplier. Every R1 billion in infrastructure investment can generate up to R2.30 in GDP growth over five years, per the National Planning Commission. Roads and power upgrades reduce business costs, while water projects improve health outcomes. It’s a bet on growth, not just revenue—unlike a VAT hike, which drains spending without creating new value.
Can SARS really collect R35 billion more with just R7.5 billion in new funding?
Yes, if past performance is any guide. Between 2020 and 2023, SARS recovered R42 billion through improved compliance and digital audits after a R4.8 billion investment. The new funding targets high-risk sectors: informal traders underreporting income, multinational tax avoidance, and fraud in fuel levies. The key is technology: AI-driven data matching and real-time transaction tracking are already cutting evasion by 12% in pilot zones.
What happens if the Appropriation Bill doesn’t pass by June 30?
If the bill fails, departments can only spend up to 10% of last year’s monthly budget after the first four months. That means hospitals might delay medicine orders, schools could freeze repairs, and road maintenance crews may sit idle. The 2022 budget impasse caused a 3-month delay in teacher salaries—this time, the consequences could be more severe given inflation and service backlogs.
Is South Africa’s debt level still dangerous?
Yes. At 76.2% of GDP, debt is still above the 70% threshold that credit agencies flag as risky. While stabilization is progress, the real danger lies in interest payments, which consume 15% of total revenue—more than education or health. Without stronger growth, even small rate hikes by the South African Reserve Bank could push the country into a debt spiral.
What’s the significance of the November 12 Medium-Term Budget Statement?
The November statement is where the government reveals its next moves: tax changes, spending adjustments, and new revenue laws. It’s the first real test of whether the May budget’s promises—especially on SARS and infrastructure—are being implemented. If the November bill includes cuts to fuel levies or corporate tax relief, it could signal a shift toward pro-growth policies. If not, doubts about fiscal credibility will resurface.
