💹 Major Currency Snapshot:
USDZAR: 18.04
EURZAR: 20.22
GBPZAR: 24.05
Introduction:
Upcoming South African budget scheduled for May 21, 2025, detailing anticipated revenue measures like higher fuel and sin levies to address a significant budget deficit while avoiding a VAT increase. Concurrently, the sources discuss developments in global financial markets, noting the weakening US dollar driven by soft US economic data cementing bets for Federal Reserve rate cuts, and the contraction of Japan’s economy in the first quarter amid trade tensions.
Key takeaways from sources:
- South African Budget:
- A new budget is scheduled to be tabled on May 21, 2025.
- This budget is expected to avoid a VAT increase, which was heavily rejected in previous budget attempts.
- To address a significant budget deficit left by the withdrawal of VAT hikes, the National Treasury will combine spending cuts with other revenue sources.
- Taxpayers should prepare for likely higher fuel and sin levies (taxes on tobacco and alcohol), as these are anticipated measures to generate revenue. Hiking fuel levies could raise about R4 billion, and higher excise duties could raise R1 billion or more.
- ‘Stealth’ taxes, such as not adjusting tax brackets for inflation (bracket creep) and not adjusting medical aid tax credits, are also likely to remain in place.
- Cutting expenditure is highlighted as a prudent solution given South Africa’s challenge in funding its fiscal deficit and need for financial consolidation.
- Higher tax collections are expected and projected, supported by efforts to bolster SARS’ capacity and funding to target unregistered taxpayers and key demographics.
- The economic backdrop is weak, with tax revenues constrained and GDP growth forecasts being revised downwards to between 1.0% and 1.5% for 2025. Sustainable state finances require GDP growth of over 3.0%.
- Borrowing projections show a notable rise in debt-to-GDP ratios, expected to be significantly higher than the 60% level typical for emerging markets (e.g., 76.4% in 2025/26).
- A conservative budget approach is expected to avoid negative reactions from financial markets and credit rating agencies.
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