Budget 2025: Balancing Fiscal Discipline and Growth

The 2025 Budget Speech reinforced commitment to fiscal consolidation while maintaining a pro-growth agenda. Melanie Stockigt, Portfolio Manager and Analyst at Laurium Capital, provided key insights in sharing an audio commentary into how the budget aligns with investor expectations and the broader economic landscape. We summarised her insights below:

A Commitment to Fiscal Discipline

One of the primary concerns for bond investors was whether the government would demonstrate a strong commitment to fiscal consolidation. The budget delivered on this front, with:

• Debt-to-GDP projected to peak at 76% next year before declining.
• A growing primary surplus, meaning government revenue is expected to exceed expenditure.
• A clear stance that additional borrowing is not an option, reinforcing fiscal responsibility.

Pro-Growth Spending Priorities

The budget, titled “Investing for Faster Growth,” maintained a pro-growth focus despite minor expenditure adjustments:

• Infrastructure investment remains a priority, with a strong emphasis on private sector involvement.
• The initially proposed 2% VAT increase has been softened to 0.5% per year over the next two years.
• Spending efficiency reviews will be conducted jointly by the Presidency and National Treasury, with the possibility of cancelling the second VAT increase if sufficient savings are identified.

Additionally, the government aims to balance revenue generation and household support by:

• Not adjusting tax brackets for inflation, resulting in increased revenue.
• Expanding zero-rated food items and maintaining fuel levy stability to ease the impact on consumers.
• Slight increases in social grants to support lower-income households.

Political Uncertainty and the Path to Approval

A key challenge remains—the budget still needs parliamentary approval. The Democratic Alliance (DA), a key player in the Government of National Unity (GNU), has expressed reservations and is demanding clearer pro-growth measures, such as:

• Faster concessioning of ports, a crucial element of Transnet’s recovery strategy.
• Legislative clarity on issues like expropriation without compensation.

With early April set as a critical deadline, negotiations will determine whether a compromise can be reached to pass the budget.

Market Reaction and Outlook

Markets responded with measured volatility:

• Bond yields moved up by 8–9 basis points, reflecting investor caution.
• The rand weakened initially but later recovered, in line with global market influences.

Despite short-term uncertainty, Stockigt remains optimistic that a political compromise will emerge, allowing the budget to pass and shifting focus toward boosting investor confidence and economic growth.

Looking Ahead

The 2025 budget marks an important step in South Africa’s economic journey, reinforcing fiscal discipline while attempting to support growth. However, policy certainty remains a critical factor in achieving long-term stability. With key negotiations unfolding in the coming weeks, all eyes are on early April as a pivotal moment for the country’s economic trajectory.