South Africa’s 2025 budget – everything you need to know

South African finance minister Enoch Godongwana delivered the 2025 National Budget speech on Wednesday.

The budget addressed several key points, including the country’s current economic status, growth projections, substantial debt servicing costs, proposed increases in value-added tax (VAT) and sin taxes, and the continuation of the social relief of distress (SRD) grant.

A major sticking point for many over the past weeks leading up to the budget was the increase in VAT, which has still been pushed through, albeit at a revised 1% points over the next two financial years.

However, to balance the reduction in VAT hike, Godongwana noted that personal income tax brackets and medical aid tax credits would not be adjusted for inflation.
He said despite sluggish growth over the past decade, South Africa’s economy is projected to grow at an average of 1.8% from 2025 to 2027.

“The truth is our economy has stagnated for over a decade. In that time, gross domestic product (GDP) growth has averaged less than 2%, far below the level required to meet our expanding list of needs.
“In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8%.

“To meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration,” Godongwana said.

He added that the medium-term outlook is supported by higher investment and household consumption, aided by a stable inflation outlook, moderate employment gains, and improving household balance sheets.

“Continued easing of structural constraints will support the economy by fostering additional investment, including infrastructure,” he said.

Real economic growth is forecast to reach 1.9%, while the consolidated budget deficit is expected to contract from 5% of GDP in 2024/25 to some 3.5% in 2027/28.

Real GDP is projected to grow to 1.9% in 2025, down to 1.75% in 2026 and back up to 1.9% in 2027.

The higher budget deficit means that debt-service costs in 2024/25 have been revised higher by an additional R33.6 billion to R389.6 billion. This translates to 22 cents of every rand raised in revenue.

Godongwana said to put this into perspective, spending on debt-service costs is greater than the respective budgets for health, the police, and basic education.

Debt will now peak at 76.2% of GDP in 2025/26.

Godongwana noted this budget is the product of the combined and careful consideration of the cabinet of the Government of National Unity.

He added that public institutions should be in a better position to continue delivering much-needed services to the people.

“This vision can only be achieved by making difficult but considered policy choices that weigh up the trade-offs and commit to a way forward,” he said.

Godongwana further said the policy choices proposed are about achieving these material benefits.
“They are about moving South Africa and all South Africans forward into a better, more prosperous and equitable future,” he said.

Biggest takeaways from the mid-term budget:

VAT: the national treasury will raise VAT by 0.5 percentage points on 1 May 2025 and by the same margin on 1 April 2026, bringing the rate to 16%.
While the proposed increase is lower than the two percentage-point hike envisioned in the previous iteration of the budget, it still threatens to stoke inflation and deter consumer spending.

Retailers and manufacturers are among businesses that will likely be impacted.

Godongwana said the decision to hike tax came after careful consideration and much debate around VAT and its impact on the country. However, the bigger debate should be on how to grow the economy.

With the expected pain of a VAT increase on poor households, Godongwana also announced an extension of the zero-rated food items. These items are exempt from 16%. This includes canned vegetables, dairy liquid blends, and organ meats from sheep, poultry and other animals.

Eskom debt relief: Eskom is now in a better financial position than in 2023 when the debt relief was originally announced.
As a result of these improvements, the final phase of the debt relief package will be simplified.

The last R70 billion debt takeover will now be replaced with R40 billion in 2025/26 and R10 billion in 2028/29. “This will result in a saving of about R20 billion for the government,” Godongwana said.

Income Tax: personal income-tax brackets will not be adjusted to account for inflation to help compensate for lower-than-anticipated VAT revenue. This means that taxpayers will fall prey to inflationary bracket creep.

Most people will have less money in their pockets, and those who earn regular salaries and can’t restructure their packages are the most affected.

Any South Africans who received an inflation-based or higher salary hike in 2025 may now be in a higher tax bracket and pay more taxes. The proposals for personal income tax will take effect on 1 March 2025 and are projected to generate R19.5 billion in revenue.

Grants: the government is very aware of the cost-of-living pressures faced by households, and, therefore, social grants will receive increases above inflation.

The SRD grant was introduced in 2020, at the start of the Covid-19 pandemic. The grant currently amounts to R370 per month and, despite being temporary, supports over 10 million people.
The grant will also be extended by a year to end March 2026. R35.2 billion is allocated for the grant.

Updated increases in social grants: the old age grant will go up from R2 185 to R2 315, and for war veterans from R2 205 to R2 335.
Disability grants go up from R2 185 to R2 315.
The foster care grant increases from R1 180 to R1 250.
Care dependency grants rise from R2 185 to R2 315.
Child support grants go up from R530 to R560.
Grant-in-aid rises from R530 to R560.

Public sector wage: the government is sticking to a deal to lift state workers’ wages by 5.5% in 2025/26 and by the inflation rate over the following two years.

This agreement will cost an additional R7.3 billion in 2025/26, R7.8 billion in 2026/27 and R8.2 billion in 2027/28.

An amount of R11 billion is provisionally allocated over the next two fiscal years for the early retirement initiative, with intention to attract younger employees into the public service.

Preliminary savings are expected to average R7.1 billion annually over the medium-to-long term. The savings will be retained by departments.

Although the agreement exceeds the 2024 budget and medium term budget policy projections, its duration reduces uncertainty in budget planning.

It also retained plans to offer early retirement packages to senior staff. However, the country’s biggest labour group’s proposal to pause contributions to a defined benefit pension fund for state workers was rejected.

Sin tax: Godongwana proposed raising 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.

Fuel levies: Godongwana has provided relief for South African motorists. The minister confirmed that the general fuel levy will remain frozen for another year.

Additionally, the Road Accident Fund (RAF) levy and the customs and excise levy will also stay unchanged.

According to Godongwana, freezing the general fuel levy and the RAF levy for another year will provide approximately R4 billion in tax relief to motorists, helping to alleviate the impact of the proposed VAT increase.

However, it’s important to note that not all fuel taxes are being frozen. Starting in April, motorists will still face higher fuel taxes due to a significant increase in the carbon fuel levy, which will rise by over 366%.

“The carbon tax is a key component of South Africa’s efforts to combat climate change. It will increase from R190 to R236 per tonne of carbon dioxide equivalent starting on 1 January 2025.”

Furthermore, as mandated by the Carbon Tax Act of 2019, the carbon fuel levy will rise by 3 cents per litre from 2 April 2025, bringing the total to 14 cents per litre for petrol and 17 cents per litre for diesel.

– Businesstech