As Finance Minister Enoch Godongwana prepares to deliver the 2025/26 budget speech tomorrow, provincial governments have joined economic experts in calling for clear solutions to South Africa’s mounting fiscal challenges. The Western Cape Government (WCG) has emerged as a prominent voice, demanding concrete measures to support provincial service delivery amid growing financial pressures.
Western Cape Premier Alan Winde and Finance Minister Deidré Baartman have highlighted critical issues facing provinces, particularly the challenge of maintaining essential services while pursuing fiscal consolidation. “Now is not the time to desert our core services of education, health, and social development,” Minister Baartman emphasized, pointing to mounting pressure from cuts to donor funding, national revenue shortfalls, and rising government debt.
The WCG has outlined several urgent matters requiring ministerial attention:
USAID/PEPFAR Funding Crisis
A primary concern is the impact of the USAID/PEPFAR funding freeze on crucial social programs. While recent measures by the National Department of Health offer some relief, questions persist about the long-term sustainability of these initiatives, particularly in health, social development, and education sectors.
Provincial Funding Formula Under Scrutiny
The current Provincial Equitable Share formula has come under criticism for failing to adequately reflect population growth and economic performance, particularly in rapidly expanding provinces like the Western Cape, Gauteng, and KwaZulu-Natal. The WCG argues that good governance and innovation should be better rewarded in the allocation formula.
Grade R Expansion Concerns
While supporting universal Grade R access, provinces have expressed serious reservations about funding this initiative without compromising other critical social services.
Economic Context and Challenges
The budget speech comes at a crucial juncture for South Africa’s economy. Despite some positive developments, including reduced power cuts and the formation of a Government of National Unity in 2024, the country faces significant challenges:
• GDP growth projections remain modest, with expectations of 1.8% average growth from 2025 to 2027
• Approximately 18 million working-age South Africans qualify for the R370 monthly SRD grant
• Unemployment remains disproportionately high among Black African populations at 35.8%
• The national unemployment rate stands at 31.9%
Tax Proposals and Concerns
The possibility of tax increases has sparked widespread debate. The Western Cape Government has strongly opposed any above-inflation tax hikes, warning they would disproportionately impact vulnerable families. Premier Winde stated bluntly, “The cost-of-living crisis is already placing immense pressure on vulnerable residents. Hiking taxes would be unconscionable and disastrous.”
Alternative revenue proposals under consideration include:
• Implementation of the 15% global minimum corporate tax
• Potential introduction of a wealth tax
• Possible alcohol levy to fund the Road Accident Fund
• Adjustments to medical tax credits in light of NHI discussions
Path Forward
As Minister Godongwana prepares to deliver his speech, stakeholders are calling for a delicate balance between fiscal responsibility and social welfare needs. The Western Cape Government emphasizes the need for economic reforms, particularly in infrastructure development and the logistics sector, to drive growth and job creation.
The budget speech must address these competing demands while providing a credible path forward for provinces to maintain essential services in the face of growing fiscal constraints. With social grants expected to reach 30.6% of the population over the next three years, the pressure to find sustainable solutions has never been greater.
