We note the tabling of the delayed 2025 National Budget. As with previous budgets, the steps announced by Finance Minister Enoch Godongwana highlighted the need for higher growth rates in the domestic mining sector and the broader economy.
Sustained higher growth rates are the only way to ensure a durable improvement in South Africa’s public finances. Appropriately, the minister emphasised this point in the opening lines of his 2025 Budget Speech.
VAT increase
Amid pedestrian real GDP growth, the National Treasury faced challenges for the second consecutive year. As a result, Treasury announced notable stop-gap measures in the budget. These measures are necessary to ensure South Africa can meet ever-increasing demands on the public purse. They are also crucial in containing the rise in public debt. In addition, they address investor anxiety about fiscal sustainability.
Last year, Treasury utilised valuation gains from the South African Reserve Bank’s (SARB) Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to reduce South Africa’s public borrowing requirement. This year’s budget proposes a 0.5 percentage point increase in the Value Added Tax (VAT) rate on 1 May 2025.
Furthermore, another 0.5 percentage point increase will follow on 1 April 2026. This means that from April 2026, the VAT rate will increase to 16%, up from the current 15%. Notably, the VAT rate was last increased in 2018, when it rose from 14% to 15%.
Impact on mining sector employees
Other revenue-raising or tax measures in the budget include the decision not to adjust personal income tax (PIT) brackets and rebates for inflation. Effectively, this means a higher personal income tax burden for all taxable employees. However, marginal PIT rates will remain the same.
The budget proposals will impact mining sector employees in the following ways:
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Higher personal income tax payments
For example, employees with a taxable income of R350,000 in 2024 who receive a 5% salary increase in early 2025 will pay an estimated R380 more in personal income tax each month. If the salary increase is 6%, the monthly PIT burden will rise by R455.
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Mixed cost-of-living expenses
The 0.5 percentage point VAT increase in 2025 could raise the headline consumer inflation rate by roughly 0.2 percentage points in calendar 2025. If the second VAT increase proceeds in 2026, it will also be inflationary.
In both 2025 and 2026, Treasury proposes to soften the VAT hike’s impact by expanding the basket of VAT zero-rated foodstuffs. Specifically, from 1 May 2025, categories such as edible offal and tinned or canned vegetables will be zero-rated.
As usual, excise duties on alcohol and tobacco will increase above inflation. However, the fuel and Road Accident Fund (RAF) levies will not increase in 2025. This will remove some pressure on fuel prices.
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Less scope for interest rate relief
The upward tilt in domestic inflation from the VAT increase suggests reduced flexibility for the SARB to lower interest rates further. Notably, the SARB’s next interest rate decision is on Thursday, 20 March.
2025 Budget Speech and mining profitability
The tax measures in the 2025 Budget Speech must be seen within the context of mining sector profitability. The sector has faced pressure, which has reduced Treasury’s tax take from mining.
Stats SA’s latest gross operating surplus (GOS) data, which measures profitability, indicates that mining profits declined for the second consecutive year in 2024. After plunging by 18.5% in 2023, the GOS for mining fell by a further 1% in 2024.
Provisional tax data in the budget shows that corporate tax collections from the mining industry are expected to contract by a significant 28% year-on-year during 2024/25 (April 2024 to March 2025). In addition, Treasury estimates that revenue from mining and petroleum royalties will drop from R15.9 billion in 2023/24 to a revised estimate of R11.3 billion in 2024/25. Initially, Treasury had expected R16 billion in royalty payments during 2024/25.
Sustained weak real GDP growth, partly due to an underperforming mining sector, means the economy cannot generate enough revenue to finance large pro-poor expenditure and a rising public sector wage bill. The only way to break this cycle of tax hikes and spending cuts is through higher, inclusive GDP growth.
Concerns in the 2025 Budget Speech
In the meantime, as growth picks up, we support the additional funding for the South African Revenue Service (SARS). This funding will improve tax efficiency and broaden the tax base.
Despite the tax hikes, gross government debt as a percentage of GDP is projected to peak at 76.1% in 2025/26. This is slightly higher than the 75.5% forecast in the Medium-Term Budget Policy Statement (MTBPS) in October 2024.
On a positive note, the Budget outlined government plans to spend R1.29 trillion on public infrastructure over the medium-term expenditure framework (MTEF) from 2025/26 to 2027/28. However, after a solid increase in 2025/26, Treasury projects an outright decline (in real terms) in the rate of growth for public sector infrastructure spending during the final two years of the MTEF.
Furthermore, the 2025 Budget Speech did not allocate funds to support Transnet’s large capital expenditure (capex) needs to improve rail infrastructure for key mineral export corridors. This is concerning for the mining industry. Without support, Transnet will need to explore other funding sources, including private sector participation in major commodity corridors. Another potential avenue is direct capex contributions from the mining sector to maintain and upgrade rail infrastructure.
Through the Budget Facility for Infrastructure (BFI), Treasury has earmarked R1.3 billion for the expansion of the land-side container terminal at Cape Town port. In addition, they allocated R2 billion for improvements to the freight rail corridor between Gauteng and the Eastern Cape. These improvements will benefit the automotive sector and, by extension, the agricultural and vehicle export sectors.
As the minister mentioned in his speech, we hope to see more finance for infrastructure projects that will directly benefit the mining industry.
Support measures for the mining sector
The 2025 Budget Speech did provide some welcome support to the mining sector. Starting 1 April, primary sectors like mining will qualify for a refund of all eligible diesel purchases declared to SARS. Currently, the refund is capped at 80% of eligible diesel purchases.
Regarding the carbon tax, we support and welcome the five-year extension (to 31 December 2030) of electricity price neutrality. This regulation prevents Eskom from including the carbon tax in its electricity tariff application. Another positive development is the proposed 5% increase in the carbon offset allowance starting 1 January 2026.
In conclusion
To prevent further tax rises in the future, unlocking the full potential of mining is crucial. This would be an important catalyst for improved government revenue. The global rush to secure critical minerals provides a golden opportunity for mining to increase its contribution to the South African economy.
However, to realise this potential, the mining sector needs:
- A stable and predictable mining policy environment that is fit-for-purpose.
- A stable supply of affordable electricity.
- Continued progress in improving rail and port performance.
- Better infrastructure for improved access to water resources.
- Enhanced local government efficiency.
- An uncompromising stance against crime and corruption.
Hugo Pienaar | Chief Economist | Minerals Council South Africa | mail me |
