MAIN IMAGE: Nicky Weimar, chief economist at Nedbank
Editor
Zooming out from the residential property market this week, Nicky Weimar, chief economist at Nedbank, gives us an overview of what happened with the National Budget 2025 and what it means for South Africa.
A quick summary of key budget facts
The main takeaway: slower deficit reduction despite a one percentage point increase in VAT rate spread over 2 years.
Macroeconomic assumptions: The National Treasury expects real GDP growth to rebound between 2025 and 2027, with the economy benefitting from the better domestic environment. Globally, conditions remain favourable, but downside risks have risen substantially in recent weeks as the US escalates its trade war with its major trading partners. For the next three years, growth is expected to improve due to recoveries in consumer spending and fixed investment. Real GDP growth is forecast to rise to 1.9% (vs 1.7% in the MTBPS) in 2025, 1.7% (unchanged) in 2026 and 1.9% (unchanged) in 2027.
Revenue: Gross tax collections for the fiscal year (FY) 2024/25 remain well below the Budget 2024 figure but are slightly better than the R22.3 billion shortfall estimated in the 2024 Medium-Term Budget Policy Statement 2024 (MTBPS). Higher revenue over the Medium-Term Expenditure Framework (MTEF), which runs from FY2025/26 to FY2027/28), is underpinned by the rise of the value-added tax (VAT) rate to 15.5% on 1 May 2025 and 16% on 1 April 2026. As we predicted, personal tax brackets will not be adjusted for inflation effects to compensate for the revenue loss due to the lower VAT increase. Over the MTEF, faster economic growth and a higher tax buoyancy rate add to the boost from the higher VAT rate, with gross tax revenue increasing by an annual average 7.7%.
Expenditure: Expenditure in 2024/25 will be higher than budgeted in February and October of last year. The National Treasury has increased its estimate for 2025/26. Higher non-interest expenditure is mainly to blame, caused by a higher aggregate wage bill over the MTEF following the above-inflation wage settlement for FY2025/26. Debt service costs will also add pressure, rising at an annual average rate of 7.1% over the MTEF.
Budget balance: The Budget deficit rises to 5% in FY2024/25, in line with October’s estimate, but nonetheless the highest level since FY2021/22. As a result of the lower VAT hike, National Treasury again reflects a slower pace of deficit reduction. The deficit remains above 3% over the MTEF. Encouragingly, the primary surplus widens substantially over the period, helping to reduce the public debt ratio. A primary surplus will anchor spending and borrowing changes.
Debt metrics: The public debt ratio peaks at 76.2% in FY2025/26, slightly higher than in the MTBPS, and moderates gradually thereafter.
Read the full analysis here.
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