The 2025 Budget is set to hit taxpayers hard, with financial experts warning that rising costs and additional taxes will strain household finances. Although the government aims to stabilise debt and manage spending, analysts say the Budget offers little relief for struggling South Africans.
Wynand Gouws, wealth manager at Gradidge-Mahura Investments, says the Budget Speech contained no major surprises but confirms that the average taxpayer will feel the financial squeeze.
“The cost-of-living challenge that South Africans have faced will be compounded by additional taxes, be it directly or indirectly,” he says.
Lara Warburton, managing director of Integral Wealth Management, describes the Minister of Finance as “walking a tightrope at a very difficult time for South Africa”.
She explains: “He has the unenviable goal of trying to reduce our long-term debt burden, which is costing the country 22 cents in every rand SARS earns, while accommodating disappointing GDP growth of 1.8% and above-inflation public sector wage increases in a bloated public sector.”
Warburton adds that revenue collection shortfalls from last year are likely to persist.
“The Budget was very lacklustre and not worthy of any celebration for anyone.”
René van de Spreng, director at Apex Private Wealth, says the outcome is clear: an austere Budget that will weigh heavily on household finances. He says it is difficult to conclude that the government wants to provide less for its citizens while taxing them more.
“It’s going to be painful and one that is going to bite the pockets,” he warns.
Izak Odendaal, chief investment strategist at Old Mutual Wealth, highlights the shift towards a more intricate budgeting process, which brings both uncertainty and the crucial benefit of heightened scrutiny and trade-off discussions.
“South Africa does not have easy choices left to make. All it can do is to make the difficult choices well.”
As Parliament prepares to deliberate and approve the Budget over the next two weeks, financial analysts are closely monitoring its implications for the Government of National Unity (GNU).
VAT increase
The possibility of a VAT increase has been the most contentious issue in the Budget. Initially proposed as a two-percentage-point hike, the increase has been revised down to one percentage point, phased in over two years – 0.5% in May 2025 and another 0.5% in April 2026. This will bring the VAT rate to 16% in 2026/27, marking the first increase since 2018.
To offset the revenue shortfall, the government has opted not to adjust the personal income tax (PIT) brackets for inflation. Social grant increases, which were initially set well above inflation in the 19 February proposals, have also been scaled back. However, VAT zero-rating remains in place for certain essential goods, and the fuel levy remains unchanged.
Gareth Collier, a Certified Financial Planner and the founder of Firecrest Modern Capital, says the decision to forgo adjustments to tax brackets allowed for a lower and more gradual VAT increase.
“Essentially, they have found a balance of sharing the tax increase burden across individual income taxpayers and the broader tax base subject to VAT. Last month’s proposal would have been perceived to be more unfairly allocated towards consumer VAT payers.”
Collier adds that although VAT increases are a more market-friendly option, they come with negative social sentiment and a disproportionate impact on lower-income consumers.
Van de Spreng warns that even a modest VAT hike will have widespread consequences. He notes that consumers will face a higher cost of living because everyday goods and services become more expensive, despite the expansion of VAT exemptions for essential items. Reduced disposable income, coupled with inflationary pressure, could hit lower-income households the hardest.
Warburton agrees. “The 0.5% VAT increase both this year and next will harm the poor most. Zero-rating a few additional food items and keeping the fuel levy unchanged will help, but these measures are not enough to improve the lot of the poor,” she says.
She also questions the impact the scaled-back social grant increases will have.
“The above-inflation social grant increases are off a low base and so not very meaningful given the above-inflation increases in many other essential expenses.”
For investors, the ripple effects could be significant. Van de Spreng cautions that higher inflation may erode real investment returns, particularly in fixed-income assets. Interest rates could rise in response, putting pressure on equity markets and company profitability. Reduced consumer spending may also weigh on revenue for sectors reliant on discretionary purchases. However, he notes that defensive industries such as consumer staples and utilities could offer more stability in a shifting economic landscape.
Collier highlights another issue: the VAT registration threshold remains unchanged.
“No mention has been made of adjusting the R1-million turnover threshold for VAT registration. Given that we’ve moved from a VAT rate of 14% to now 15.5% – a more than 10% increase over the past few years – this will pose significant challenges for businesses trading around that threshold. They have likely already been increasing the cost of their goods or services to keep up with the rising cost of living.”
He warns that crossing the R1m threshold will force small businesses to charge VAT, resulting in a sharp increase in costs for customers or leaving business owners to absorb the tax burden themselves.
“Not a good result in an economy desperate for entrepreneurial job creation and stable employment,” he says.
Personal income tax brackets
There were no changes to the PIT brackets for the second consecutive year, nor were there any adjustments to tax the rebates or the medical tax credits.
Devon Card, director at Crue Invest, notes that as salaries increase, many South Africans could end up paying more tax in real terms. Card says this effectively shifts the tax burden from VAT to PIT.
“By not adjusting for inflation, Treasury is forcing more people into higher tax brackets, increasing their tax liability. The average citizen will not only pay more in personal income taxes but also through the so-called ‘sin taxes’ on alcohol and tobacco, leading to a higher overall tax burden.”
Warburton warns this will put additional strain on the middle class.
“In an environment of high unemployment and limited job creation, especially in the private sector, this will hurt middle-income earners.”
She also points out the lack of new policies to stimulate private-sector job growth.
“There were no announcements of any policy changes to improve job creation in the private sector. While there were many comments about efforts to curb corruption and leakage in the public sector, these promises have been made for some time now.”
Collier says it was encouraging to see Treasury acknowledge that further increases to PAYE or corporate tax would do more harm than good.
“We have a highly concentrated tax base from which the vast majority of tax revenue is generated. Further abuse of this small number of entities and individuals would have serious consequences for economic stabilisation and growth,” he says.
Fiscal consolidation
Odendaal notes that this appears to be a relatively good (proposed) Budget from an investor’s point of view, with an emphasis on fiscal consolidation and economic growth. However, he adds what counts as a “good” Budget for investors is not necessarily a “good” Budget for taxpayers or citizens.
“Nonetheless, the emphasis on fiscal consolidation and boosting economic growth has support across the GNU members. This is positive from an investment point of view.”
In terms of growth-enhancing reforms, he highlights the second phase of Operation Vulindlela and infrastructure investment as key focus areas.
“Public infrastructure investment will add up to R1 trillion over three years, with the government set to issue its first infrastructure bond.”
Additionally, the Budget prioritises attracting private sector investment in infrastructure, particularly in new electricity transmission lines, and expanding public-private partnerships (PPPs).
“These initiatives will take time to raise the growth rate. Treasury forecasts economic growth of 1.8% on average over the next three years. This is a vast improvement from the 0.6% growth in 2024 but is not enough to meaningfully address South Africa’s many challenges. There are also risks to this outlook from a potential global trade war,” he says.
The Budget’s deficit projections are largely in line with the abandoned February Budget, with expectations of a growing primary (non-interest) surplus over the medium term.
“This means the debt-to-GDP ratio is expected to peak in the current fiscal year and drift lower thereafter. It also means that the high and unsustainable debt service burden – 22 cents of every rand SARS collects goes toward interest payments – will stabilise and eventually decline,” says Odendaal.
Critics, however, have raised concerns about the size and efficiency of the government, particularly its extensive public sector and large Cabinet.
According to the Budget, public sector wage increases will be implemented as previously agreed.
Card notes that Treasury does not appear to have a clear agenda to actively reduce government expenditure.
“While some spending reductions have been discussed, there are no strong measures to cut inefficiencies in public sector spending, which means that taxpayers continue to bear the financial burden of government debt and operational costs.”
Odendaal adds that Treasury will present a spending review to the Cabinet next month.
“It is unclear what it contains but does suggest that government realises it is not politically feasible to increase taxes without greater prioritisation and efficiency on the spending side. If done properly, it can find significant real savings but clearly won’t happen overnight,” he says.
