Understanding the 2025 Budget’s Impact on Business

Finance Minister Enoch Godongwana delivered the 2025 budget speech against a backdrop of a stagnating South African economy, which has seen GDP growth average less than 2% over the past decade, and a mere 0.6% in 2024. The central theme of the budget is achieving faster and more inclusive economic growth through a pragmatic approach.

Key Takeaways for Businesses:

• Focus on Macroeconomic Stability and Structural Reform: The budget aims for a primary surplus of 0.5% of GDP in 2024/25, increasing to 0.9% in 2025/26. Government debt is projected to stabilize at 76.2% of GDP in 2025/26. This commitment to fiscal prudence signals a focus on long-term economic health.
• Infrastructure Investment: Over the next three years, the government will spend over R1 trillion on public infrastructure. Key areas include:
  • Transport and Logistics (R402 billion)
  • Energy Infrastructure (R219.2 billion)
  • Water and Sanitation (R156.3 billion) This substantial investment offers significant opportunities for businesses in construction, engineering, and related sectors.
• Public-Private Partnerships (PPPs): New PPP regulations, effective June 1, 2025, will reduce complexity and create opportunities to optimize the balance sheets of financially distressed state-owned companies. This encourages private sector participation in key areas.
• VAT Increase: Businesses should prepare for a VAT increase to 16% in 2026/27. This will impact pricing strategies and potentially consumer spending.
• Tax Administration: Increased funding for SARS suggests a focus on improved administrative efficiency. Businesses can expect greater scrutiny regarding tax registration and filing compliance.
• Local Government Reform: The budget includes reforms to improve the revenue-generating services of local governments (water, sanitation, electricity, and refuse removal). This aims to create a more efficient and reliable operating environment for businesses at the local level.

Opportunities and Challenges:

The budget presents both opportunities and challenges for businesses:

• Opportunities: Infrastructure projects, PPPs, and a focus on energy reform create avenues for growth and investment.
• Challenges: The VAT increase, while necessary for fiscal consolidation, may impact consumer demand. Businesses need to adapt to the changing tax landscape and ensure compliance.

Conclusion:

The 2025 budget reflects a commitment to addressing South Africa’s economic challenges through a combination of fiscal responsibility, structural reform, and targeted investment. Businesses should carefully consider the implications of these measures and position themselves to capitalize on the opportunities that arise.