Watch live: All eyes on finance minister’s Budget Speech this afternoon

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BUSINESS NEWS AND VIDEO - Minister of Finance Enoch Godongwana is expected to deliver the 2025 Budget Speech in Parliament at 14:00 today – and the burning questions are whether VAT will be increased or relief grants slashed.

It was initially scheduled for delivery on 19 February, but was postponed at the last minute due to disagreements among Government of National Unity parties over a 2% VAT increase.

This was the first time in 30 years that the budget, which seeks to strike a balance between economic growth and providing support for the most vulnerable in society, was postponed.

This morning, The Witness reported that experts suggest addressing the massive losses from illicit trade could significantly reduce the government’s budget deficit without burdening consumers through higher taxes.

Godongwana initially proposed a 2% VAT increase in his aborted February 19 budget. It is now anticipated he will propose a more modest 0.5% hike.

However, this reduced increase will fall far short of the R60b required by the National Treasury to sustain essential initiatives, such as the monthly R370 Social Relief of Distress (SRD) grant. Godongwana drew criticism this week when he was reported as saying: “If you allowed me to cut the SRD, I wouldn’t increase anything. I’m faced with increased expenditures which are not in the budget.”

Dr Sanele Gumede, an economic expert from the University of KZN, warns that even a higher VAT increase would not necessarily achieve the government’s financial goals.

“What needs to be considered is that any form of VAT increase will result in consumers spending less compared to what they are currently spending.

“South Africans, particularly the poor, are currently struggling to cope with the high cost of living. So, if you push prices by increasing VAT, it is highly likely that people will spend less.

“A reduction in spending will have a negative impact on the economy,” he says.

Gumede argues that instead of burdening taxpayers, the government must urgently address the financial leakages draining billions from state coffers through illicit trade and money laundering.

“As we speak, South Africa has been greylisted. One of the main reasons for the greylisting was that government systems have rendered the country vulnerable to money laundering. The fact of the matter is that weak government systems, which should have been tightened long ago, have resulted in lower tax collections,” he says.

Yusuf Abramjee, founder of Tax Justice SA, highlighted the significant scale of revenue lost through illicit trade, particularly in tobacco and alcohol.

“Illicit cigarettes alone deprive the fiscus of R27b in tax revenue every year – nearly as much as a 1% increase in the VAT rate.

“The illicit alcohol trade robs the country of another R11b annually. It’s a similar story in other sectors, ranging from electrical products to pharmaceuticals. The government must focus on enforcing existing laws instead of raising taxes that only push more consumers towards illicit products,” Abramjee says.

International banking and wealth management group Investec agrees that tackling illicit financial flows could boost government revenue substantially, but warned these measures might not deliver immediate results.

“In the short term, several scenarios for tax increases are proposed based on the net increase in spending. Given that a 2% VAT increase is unlikely to be enacted, a combination of tax increases appears more probable.

“The International Monetary Fund has suggested that comprehensive tax administration reforms could raise revenue by three percentage points of GDP over six years. However, these measures are viewed as medium-term objectives rather than immediate solutions,” Investec said in a statement.

Bills to be presented

According to SANews, the minister will also present the Appropriation Bill and submit the 2025 Division of Revenue Bill, both of which Parliament will review and process in the coming months.

During the Budget Speech, the minister indicates the allocation of financial resources to the national government’s priorities outlined by President Cyril Ramaphosa in the State of the Nation Address.

Godongwana will outline all financial, economic and social commitments the government will prioritise in its planned expenditure.

He will also provide a detailed plan for 2025 spending, including proposals for revenue collection to help fund the government’s planned interventions and commitments.

In a weekly newsletter, Ramaphosa acknowledged the concerns raised following the budget speech postponement in February.

“The last-minute postponement was unfortunate. It gave rise to concern and uncertainty among South Africans, investors and the financial markets, who look to the budget for important signals about the state and direction of our economy.

“Decisions on how to spend public funds have implications for every South African. It is therefore essential that the concerns raised by different parties around the budget are properly addressed, in the interests of accountability, transparency and consensus-building,” the president said.