FINANCE Minister Enoch Godongwana delivered the third reiteration of the 2025 National Budget Speech on Wednesday, 21 May.
The budget revised several key points, including the country’s economic status, growth projections, substantial debt servicing costs, the withdrawal of the contentious VAT increases, and the continuation of the social relief grant.
However, to balance the withdrawal of the VAT hike, Godongwana noted that fuel taxes would be adjusted for inflation.
He also noted that despite sluggish growth over the past decade, South Africa’s economy will likely expand by only 1.4% this year, lower than the 1.8% projected in March.
“The global economy is facing heightened trade tensions and elevated policy uncertainty, with worrying economic consequences,” Godongwana said.
The new budget outlines spending cuts of R69.4 billion over three years, with the education, health, and home affairs departments and Transnet bearing the brunt.
These cuts fill most of the gap left after the scrapping of a previously proposed VAT hike that some members of the GNU rejected.
However, the withdrawal of the VAT hike and a weaker economic outlook mean the National Treasury will have around R62 billion less revenue to work with over the next three years.
The slower growth will also result in South Africa’s debt-to-gross domestic product ratio peaking at 77.4% in the fiscal year through March 2025.
This is a slight increase from a 76.2% peak forecast in the March budget and 75.5% in the October 2024 mid-term update.
The new budget also sees the national borrowing requirement at R588 billion in 2025/26, around R6 billion more than planned in March.
Although the proposed VAT hike was scrapped, the budget will still increase taxes by R18 billion this year by not adjusting income tax brackets for inflation, a carryover from the previous proposals.
Additionally, it will raise petrol and diesel levies in line with inflation. By leaving such measures in place, an additional R20 billion of tax income was pencilled in for the 2026 Budget.
“I believe this budget supports economic activity while raising future economic prospects, directs spending towards the social wage, and invests in state capability and critical infrastructure,” said Godongwana.
He added that negotiation, debate, and compromise, as we have seen unfold over the last weeks, have been necessary, if sometimes painful, investments in the productivity of future government reform in the new political environment.
“We have all gained a better, deeper appreciation of each other’s policy positions and which trade-offs each of us is willing to contemplate,” he said.
Here are the biggest takeaways from the mid-term budget:
VAT
The National Treasury has decided not to go ahead with plans to increase value-added tax (VAT) following objections from members of the governing alliance.
Godongwana said this decision will help contain inflation and boost consumer spending, benefiting retailers and manufacturers.
“The debate surrounding the proposed VAT increase on March 12 was intense and significant, creating some uncertainty,” said Godongwana.
However, we now have clarity: VAT will remain at 15%. This decision demonstrates our commitment to listening to South Africans and all the political parties represented in this House.”
Fuel Levies
Godogwana has announced an inflation-based increase to fuel taxes in the country, ending a three-year freeze.
The Treasury raised levies on petrol by 16 cents per litre and on diesel by 15 cents per litre to help offset lost revenue from the withdrawal of the VAT rate increase.
This will result in inflationary increases in the general fuel levy for petrol and diesel to R4.01c/l and R3.85c/l, respectively, effective from 4 June 2025.
The Road Accident Fund levy will not be changed and will remain at R2.18, while the carbon fuel tax levy will keep the same 3 cents per litre increase seen in previous budgets.
This means that the combined tax increase is 18/19 cents per litre, bringing total taxes to R6.37 for petrol (30% of the total price) and R6.24 for diesel (33% of the total price).
Income Tax
Godongwana kept the personal income tax brackets unadjusted to account for inflation to help compensate for the loss of VAT revenue. This means that taxpayers will fall prey to inflationary bracket creep.
That will leave most people with less money in their pockets, and those who earn regular salaries and can’t restructure their packages and are the most affected.
However, while the previous budget is expected to collect R18 billion in revenue from these measures, the new budget revision only sees Treasury gaining an additional R15.5 billion.
He also warned of more tax measures coming in 2026.
He said next year’s budget will propose measures to raise an additional R20 billion in taxes if SARS cannot raise additional income through more efficient administration and increased tax compliance.
Grants
Godongwana said that the R1.6 billion increase in social grants for 2025/26 in the previous budget will remain unchanged, except for welfare grants.
However, he added that the government is considering a new system to integrate the SRD grant with employment opportunities.
The grant currently amounts to R370 per month and, despite being temporary, supports over 10 million people.
The SRD grant, in its current form, will also be extended by a year to end March 2026. R35.2 billion is allocated for the grant.
The Treasury had planned to increase monthly stipends paid to pensioners and other vulnerable people by more than the inflation rate to shield them from higher consumption taxes.
However, that plan has been scrapped, saving the government R6.6 billion over three years.
Although no permanent income grant was mentioned, the minister said government is considering several ways to integrate the SRD grant with employment opportunities.
“This includes considering a job-seeker allowance and other measures, as part of the review of Active Labour Market Programmes,” said the Minister.
Sin tax
The Minister has kept the above inflation increase on sin taxes, while the sugar tax will remain unchanged.
The plan is to raise excise duties on alcoholic beverages, pipe tobacco and cigars by 6.8% and on cigarettes and vaping products by 4.8% from 1 April 2025.
An inflationary increase in the health promotion levy (ie sugar tax) was due to take effect on 1 April 2025, but Treasury moved to cancel this back in the March budget, which it has carried through to May.
The cancellation of the increase is to allow the sugar industry more time to restructure in response to regional competition.
Responding to the Budget 3.0, the sugar industry welcomed the freeze.
