South Africa - Budgets and tariffs... so where are we now.

4 June 2025

Image: JP Landman - Political & Trend Analyst

Budget 3.0 was tabled on the same afternoon as the SA/US meeting in the White House. Both events have been widely covered; this note assesses where we are now on both.

Budget – the centre is holding

The last note about the Budget raised the critical question whether parliamentarians would exercise their new freedom to change the Budget in a manner that would not undermine debt consolidation. I called it ‘a moment of decision’ - happy to say that at the time of writing this, the right decisions were taken. There is no splurge in spending and borrowing, and the main parties seem aligned behind the Budget.  The EFF is challenging the increase in petrol levies and the court will decide the matter.

It means the centre is holding; the credibility of the Treasury is intact; and expenditure pressures are not derailing the overall fiscal approach. Sure, there are still four voting rounds before the Budget is finally approved, but so far, so good.

Primary surplus

The most important number is the primary surplus – income bigger than expenditure, before interest payments. Budget 1.0 in February proposed a primary surplus of R71 billion. Budget 3.0 proposed one of R65 billion. That is without the VAT increase and assuming lower economic growth of 1.4% against February’s 1.9%. No mean achievement in the context.

The trend is clear: after years of primary deficits, a primary surplus of R33 billion was achieved in 2023/24; then R50 billion in 2024/25; and now R65 billion for 2025/26.

Despite income and expenditure pressures, the trend speaks to the political will to tackle debt stabilisation.

Debt stabilises

The debt-to-GDP ratio is 1.2% higher in Budget 3.0 at 77.5%, mainly due to lower GDP growth. Over the next three years, that ratio is budgeted to decline to 3.4% - thanks to the primary surplus.

Market reaction

The previous note discussed the importance of the capital market and the long rate. It seems as if the market liked the Budget. The long rate drifted from a high of 10.75% in April after Budget 2.0 to 10.365% on 28 May. That is a reduction of 0.38% or 38 base points. On the gross amount the Minister of Finance plans to borrow this year, R588 billion, the declibe implies an interest saving of R2.2 billion over 12 months. Many teachers and doctors can be employed with that amount of money. A drop in the long rate is not theoretical; it means very real cash saved. (And yes, the government is borrowing R1.6 billion every day of the year!)

Drawing some capital

A development outside the Budget, which may very well help debt stabilisation, is that the Treasury and the South African Reserve Bank will sit together in the second half of the year and assess whether there are sufficient surpluses in the Gold & Foreign Exchange Account that could be drawn down to repay debt. There are various surplus requirements to be met, but if deemed possible, it will help to reduce the quantum of debt and the interest payable. This will be a bonus.

Voting dates

The different rounds of voting to pass the Budget in its entirety will take place as follows:

1. Approval of the Fiscal Framework – 11 June 2025
2. Division of Revenue Bill – 25 June 2025
3. Appropriation Bill – 23 July 2025; but preceded by approval of all the individual departmental budgets (called ‘votes’ in parliamentary jargon), a process that starts on 27 June.
4. The Medium Term Budget Policy Statement (MTBPS) – also known as the adjustment Budget – will be on 22 October 2025, and thereafter the Revenue Bills will be considered.

Obviously, the broad consensus around Budget 3.0 must be sustained until the Revenue Bills are approved, normally just before Parliament rises in early December. It is the work of the various party whips to keep everybody in line, but so far, so good.

Post the White House meeting

Enormous amounts have been written and talked about this circus, but after all the drama, where are we? I leave the theatrics aside and focus on the trade aspects.

Currently, the position is as follows:

• AGOA is dead. With his unilateral tariffs, Trump has driven a stake through this. There is now a standard 10% tariff on all imports into the US, and a 25% tariff on steel, aluminium, automotives and automotive products.
• Half of SA’s exports to the US are not tariffed, not even at 10% – these are minerals the US wants, which Trump has exempted.
• Trump threatened ‘Reciprocal tariffs’ of 31% on the rest, but suspended them until 9 July pending the negotiation of trade deals. (A US court declared the tariffs invalid, but it remains to be seen if that will stop Trump. His trade policy assistant Peter Navarro said the administration ‘will find a way’.)

In pursuance of a trade deal, SA has tabled a proposal of which some details, but not all, have become public (thanks to Reuters).

• South Africa has offered to buy liquefied natural gas (LNG) from the United States over ten years at a rate of between 75 and 100 million cubic meters per annum. Readers will know that SA faces a ‘gas cliff’ by 2028/29 and will have to import LNG to meet local demand.
• South Africa also proposed a duty-free quota of 40 000 vehicles to be exported to the US, and duty-free access for automotive components sourced from SA for US production. These two items would make a huge difference to the local car industry.
• Also proposed is a duty-free quota of 385 million kilograms of steel per year and 132 million kilograms of aluminium per year. Since the 25% is applied globally to all steel and aluminium producers, a lower tariff for SA producers would be very beneficial. (Trump has since doubled the import tariff on steel to 50%).

Whether these proposals are acceptable to the US remains to be seen. But the US wants minerals, and its companies would like to pursue gas opportunities in SA. We want market access there; they want access here. Let’s see if a deal can be reached.

Trump himself has admitted that the US does not have the capacity to negotiate all the trade deals he wants to see negotiated – if the White House meeting helped to keep SA at the front of the queue, it would have been worthwhile.

Starlink

The Starlink saga is dominating the news. The Minister of Communications and Digital Technologies is seeking equity equivalent alternatives to the 30% BEE shareholding required in the Electronic Communications Act (ECA) for issuing a license. The BBBEE Act already provides for such equivalents; and it has also been encapsulated in the BEE charter for the ICT sector. Ten international companies already make use of equity equivalents. So, there is no new principle, despite all the noise.

The current dispute is whether the ECA must be amended to make equity equivalents possible (a lengthy process) or whether the regulator can authorise it by merely changing regulations. It may well end up in court for a final judgement.

So What?

• The earlier political fracas around the Budget has not derailed the trend of fiscal consolidation and stabilising debt. This, despite lower GDP growth (thanks to tariffs).
• The contrast between SA and the US regarding how a fiscally responsible budget is drafted cannot be bigger. Here, the deficit is being managed down; there, it is exploding.
• South Africa now has a trade proposal on the table, its successful conclusion will benefit the steel, aluminum and automotive sectors hugely. Other sectors would likely have to live with Trump’s 10% baseline tariff. The 10% tariff may very well become the new normal globally.

Courtesy: JP Landman