After weeks of anticipation, Finance Minister Enoch Godongwana delivered the 2025 Budget Speech on 12 March, outlining key fiscal measures aimed at stabilising debt while addressing critical service delivery needs. But for businesses and consumers alike, the reality is a higher tax burden, particularly through an increase in VAT.
Key Budget Highlights:
VAT increase:
A +0.5% hike in 2025 (to 15.5%) is expected to raise R28 billion in additional revenue, with another +0.5% increase coming in 2026. To offset some of the impact, social grants will rise by +5.9% and the VAT zero-rated basket will expand.
New VAT-exempt items:
- Canned vegetables
- Dairy liquid blends
- Organ meats
No inflation relief on tax brackets:
Personal income tax brackets, rebates, and medical tax credits remain unchanged, meaning effective taxation will increase as earnings rise. However, fuel levies will not increase in 2025.
Sin tax hikes:
Excise duties on alcohol and tobacco will rise by +6.75%, adding further cost pressure to consumers.
Debt servicing dominates:
A staggering R390 billion – i.e. 22% of total revenue – will go toward servicing national debt in 2025, surpassing the budget allocations for health, policing, or basic education. The government aims to stabilise debt and reduce the budget deficit to curb these rising costs in future budgets.
R1 trillion for infrastructure over three years:
Investment is heavily geared toward transport, energy, and water infrastructure, with spending allocated as follows:
- R402 billion – Transport and logistics
- R219 billion – Energy infrastructure
- R156 billion – Water and sanitation
This is tied to Operation Vulindlela, the Treasury-Presidency initiative to accelerate structural reforms.
A Delicate Balancing Act
“No Minister of Finance is ever happy to increase taxes,” said Godongwana. “We are aware that a lower tax burden can drive investment, job creation, and household spending power. However, we have had to balance this against pressing service delivery needs that cannot be postponed.”
Despite the cushioning effects of social grant increases and VAT-free essential foods, the higher VAT rate will squeeze already strained household budgets – and businesses must brace for the ripple effects on consumer spending.
