2025 South African Budget Speech: Key Highlights and Implications

Dear Valued Clients,

We are pleased to provide you with a summary of the key points from the 2025 South African Budget Speech delivered by Finance Minister Enoch Godongwana on March 12, 2025. It is important to note that the cabinet had not approved the budget ahead of the speech, which led to significant public debate and deliberation. A dispute over VAT hikes in the GNU cabinet means that a decision on the new proposal will need to be debated and voted for in parliament.

Economic Growth and Projections

The South African economy is projected to grow at an average rate of 1.8% from 2025 to 2027. Despite sluggish growth over the past decade, the government aims to foster higher investment and household consumption through stable inflation, moderate employment gains, and improving household balance sheets.

Debt and Deficit

The budget deficit is expected to contract from 5% of GDP in 2024/25 to approximately 3.5% in 2027/28. However, debt-service costs have been revised higher by an additional R33.6 billion, translating to 22 cents of every rand raised in revenue. Debt is projected to peak at 76.2% of GDP in 2025/26.

Value-Added Tax (VAT) Adjustments

A notable change in the budget is the increase in VAT. The VAT rate will rise by half a percentage point in 2025/26 and by another half a percentage point in 2026/27, bringing it to 16%. This decision was made to address the persistent spending pressures in critical sectors such as health, education, transport, and security. The government acknowledges that this increase could impact household spending and economic growth, but it is deemed necessary to meet the service delivery needs and constitutional obligations. Due to the unprecedented postponement of the main 2025 budget from February to March, Treasury envisions that this year’s VAT rate increase (from 15% to 15.5%) will become effective on May 1, 2025.

Personal Income Tax Brackets

In an effort to increase revenue, the government has decided not to adjust personal income tax brackets for inflation. This means that taxpayers may experience “bracket creep,” where inflation pushes them into higher tax brackets, effectively increasing their tax burden without an actual increase in real income. Additionally, medical aid tax credits will also remain unchanged. These measures are expected to generate additional revenue to help fund essential public services and reduce the budget deficit.

Social Grants

The government has allocated R284.7 billion for social grants, with pensioners receiving an additional R130 per month. This increase aims to provide better support to vulnerable groups in society.

Alcohol and Tobacco

Alcohol: Taxes on spirits, wine, and beer will increase by 6.75% starting April 1, 2025. This means an extra 16 cents on a can of beer, R1.20 on a bottle of sparkling wine, and R6 on a bottle of spirits. Traditional African beer remains unchanged

Tobacco: Excise duty on cigarettes and all other tobacco products, including vapes, will increase by 4.75%, adding an extra R1 to the average box of cigarettes

Fuel Levies

General Fuel Levy (GFL): The GFL has been frozen for the year, meaning there will be no increase. This decision provides R4 billion in tax relief to motorists.

Road Accident Fund (RAF) Levy: Similar to the GFL, the RAF levy will also remain unchanged.

Carbon Fuel Levy: The carbon fuel levy will increase by 3 cents per liter starting April 2025. This means the levy will rise to 14 cents per liter for petrol and 17 cents per liter for diesel.