Finance Minister Enoch Godongwana delivered the 2025 National Budget Speech on March 12, addressing critical economic issues, tax changes, and government spending priorities. While the budget introduces measures to stabilize revenue collection and support social programs, it has faced significant criticism for its lack of structural reforms and increased tax burden on individuals. Below is a comprehensive analysis of the budget’s key aspects.
South Africa’s economy has struggled to achieve sustainable growth over the past decade, with GDP averaging less than 2% annually. In 2024, the economy grew by only 0.6%, and projections indicate a modest increase to 1.8% on average from 2025 to 2027.
“The truth is our economy has stagnated for over a decade. In that time, GDP growth has averaged less than 2%, far below the level required to meet our expanding list of needs,” Godongwana stated.
Key growth drivers include:
- Higher investment and household consumption
- Stable inflation outlook and moderate employment gains
- Easing of structural constraints and infrastructure investment
Despite these projections, concerns remain that without significant policy changes and spending reductions, economic stagnation will persist.
Value-Added Tax (VAT) Increase
The National Treasury will increase VAT by 0.5 percentage points on May 1, 2025, and another 0.5 percentage points on April 1, 2026, raising the rate to 16%.
While lower than initially proposed, this increase is expected to generate R13.5 billion in 2025 and R15.5 billion in 2026. To offset the impact on low-income households, additional zero-rated food items, including canned vegetables, dairy liquid blends, and organ meats, have been introduced.
Personal Income Tax and Fiscal Drag
Personal income tax brackets and medical aid tax credits will not be adjusted for inflation, resulting in fiscal drag, which effectively increases the tax burden on individuals who receive salary adjustments. This measure is projected to generate R18 billion in 2025 and R19 billion in 2026.
Company and Trust Tax
- The corporate tax rate remains 27%.
- Trusts continue to be taxed at a flat rate of 45%, except for distributions to South African beneficiaries.
- Estate duty and donations tax remain at 20% for amounts up to R30 million and 25% for amounts exceeding R30 million.
- Capital Gains Tax (CGT) exclusions remain unchanged, with a R40,000 annual exclusion and R2 million exclusion on primary residence sales.
Sin Taxes and Fuel Levies
- Alcohol and tobacco excise duties will increase by 6.8% and 4.8%, respectively, from April 1, 2025.
- The general fuel levy and Road Accident Fund (RAF) levy remain frozen, offering relief to motorists.
- However, the carbon fuel levy will increase by over 366%, from R190 to R236 per tonne of CO² emissions on January 1, 2025.
Government Spending and Social Grants
Despite the increased tax burden, the budget lacks significant government spending cuts. Instead, it includes:
- Public sector wage increases of 5.5% in 2025/26, costing an additional R7.3 billion.
- A provisional allocation of R11 billion over the next two years for an early retirement initiative.
- R35.2 billion for the Social Relief of Distress (SRD) Grant, extended until March 2026.
- Increases in other social grants, such as:
- Old-age, disability, and care dependency grants: R2,185 → R2,315 (+R130)
- Foster care grant: R1,180 → R1,250 (+R70)
- Child support grant: R530 → R560 (+R30)
While these initiatives aim to alleviate cost-of-living pressures, critics argue they fail to address the root causes of economic stagnation and revenue shortfalls.
Eskom Debt Relief and SARS Revenue Collection
Eskom’s financial position has improved since 2023, allowing the government to reduce the final phase of its debt relief package from R70 billion to R40 billion in 2025/26 and R10 billion in 2028/29, saving R20 billion.
Meanwhile, the South African Revenue Service (SARS) has been allocated R3.5 billion this year and R4 billion over the medium term to improve tax compliance and revenue collection. However, SARS Commissioner Edward Kieswetter has stated that these amounts are insufficient, as restoring SARS’ capacity could yield hundreds of billions in additional tax revenue.
Criticism and Concerns
Many experts and opposition parties argue that the budget fails to address South Africa’s core economic challenges. While tax hikes will generate additional revenue, the lack of significant spending cuts raises concerns about long-term fiscal sustainability.
Key criticisms include:
- Over-reliance on tax hikes rather than expenditure cuts
- Failure to address government inefficiencies and corruption
- Lack of concrete measures to stimulate private-sector investment and job creation
- Disproportionate budget allocation for VIP protection (R2 billion) versus SARS (R3.5 billion)
Some economists warn that unless drastic spending reforms are implemented, the country will find itself in the same position next year, with taxpayers shouldering an even greater financial burden.
Conclusion
The 2025 National Budget introduces critical tax and spending adjustments to address revenue shortfalls and economic stagnation. However, it lacks the structural reforms necessary to stimulate long-term economic growth. While short-term relief is provided through VAT exemptions and frozen fuel levies, South Africans must brace for increased taxation and continued economic uncertainty. The success of this budget will ultimately depend on whether the government can implement meaningful cost-saving measures and create an environment conducive to private-sector growth.