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The FW de Klerk Foundation acknowledges the 2025 Budget Speech delivered by Finance Minister Enoch Godongwana on 12 March 2025, following its initial postponement. The budget comes at a time of significant fiscal strain, with South Africa facing mounting debt and an economy that has stagnated for over a decade. While there are some positive aspects in the budget, we remain deeply concerned by key decisions that exacerbate inequality, particularly the increase in the VAT rate.

The proposed VAT increase from 15% to 16%, phased over two years with a 0,5 percentage point hike each year, is a deeply regressive measure that disproportionately impacts lower- and middle-income households. While the Foundation recognises the complexity of these trade-offs, we believe that VAT hikes are the wrong approach, particularly in a country already struggling with high unemployment and inflation.

In terms of social welfare, while the government has allocated R284,7 billion to social grants, the Foundation is concerned about the long-term sustainability of such measures. While these allocations may offer short-term relief, they fail to address the structural issues facing South Africa’s economy and public services.

Social grants should not be a substitute for meaningful economic reform.

However, there are positive elements in the budget. The government has committed R5 billion to the Department of Defence and R19,1 billion to keep 11 000 teachers in classrooms, which will have important social benefits. Furthermore, the R9,4 billion allocated for defence and correctional services ensures South Africa’s stability in an increasingly volatile region.

Despite these positive moves, the Foundation remains deeply concerned about the rising debt-service costs, which will amount to R389,6 billion this year—22 cents of every rand raised in revenue. Ismail Joosub, Manager of Constitutional Advancement at the Foundation, stated: "Relying on higher VAT to address the debt crisis fails to tackle the root causes of fiscal mismanagement. We need long-term, sustainable solutions."

Christo van der Rheede, Executive Director, added: "The R1 trillion in infrastructure spending is a key opportunity for job creation, but it must be leveraged strategically. Beyond just building roads and bridges, this investment should foster innovation and develop industries that can drive long-term economic growth, such as green energy and technology sectors. We need a holistic approach that turns infrastructure into a catalyst for future-proof employment.”

The Foundation calls for more targeted reforms to reduce inefficiency and promote inclusive growth, without further burdening the most vulnerable groups. Create an environment that is conducive to investment so that economic growth can gain traction!

Issued by FW de Klerk Foundation