Budget 2025: Tough fiscal decisions ahead for S. Africa

As South Africa approaches the Budget Policy Statement on 19 February 2025, economists and financial analysts are cautiously optimistic about the country's fiscal future. However, concerns over long-term fiscal stability linger, prompting discussions on the potential challenges and opportunities ahead. Olebogeng Ramatlhodi, Director for Tax at Deloitte Africa, shared his expert insights on the key fiscal issues facing South Africa and what could be expected from the upcoming budget. Ramatlhodi reflected on the economic landscape leading up to the budget, highlighting the improvements seen in various areas compared to the previous year. Despite positive developments such as an upgraded credit rating and easing interest rates, challenges persist, including a recent decline in performance according to the Pages and Manager index. He emphasized the need for structural changes to address these issues effectively. When questioned about potential austerity measures or tax increases to manage rising debt levels, Ramatlhodi discussed the limitations of introducing additional taxes due to already high tax rates for wealthy individuals. Instead, he proposed enhancing revenue collection mechanisms, citing past successes of the South African Revenue Service (SARS) in meeting budget forecasts. He also mentioned exploring alternative options like utilizing the Government Employees Pension Fund (GEPF) to address deficits. Addressing tax compliance gaps, Ramatlhodi identified value-added tax (VAT) and excise taxes in industries like fuel and alcohol as areas for improvement. He also noted ongoing enforcement efforts targeting businesses like DEMU and SHEIN to boost revenue collection. The conversation shifted to the impact of tax policy changes on business confidence and investments. Ramatlhodi stressed the importance of regulatory consistency for attracting investors, stating that clarity and predictability in policies are crucial for fostering a favorable business environment. Regarding potential relief for small businesses in the budget, Ramatlhodi pointed to allocations for infrastructure, technology, and public safety but expressed doubts about additional incentives due to existing financial constraints. When discussing social spending and grants, he highlighted the debate around expanding or reforming the current unemployment grant, suggesting a possible extension or increase to support those in need. In conclusion, Ramatlhodi hinted at the possibility of new tax-funded initiatives like an extended basic income grant, reflecting ongoing discussions on addressing socio-economic challenges amid budgetary constraints. As South Africa navigates the complexities of fiscal decision-making, the upcoming budget announcement will be closely watched for its implications on the country's economic trajectory.