To meet persistent service delivery needs, the government has proposed a VAT increase of 1% over two years, raising the rate to 16% by 2026/27.
Finance Minister Enoch Gondongwana finally delivered the 2025 Budget speech on March 12, after a shock cancellation in February. The approval process will follow, with Parliament set to review, debate, and vote on the proposal.
While much of the public debate has focused on the proposed VAT increase, Gondongwana said “the central issue is fostering economic growth for the majority. Over the past decade, South Africa’s economy has stagnated, with GDP growth averaging under two percent”.
To achieve the country’s goals of redistribution and structural transformation, a faster, more inclusive economy is essential.
The 2025 budget outlines a strategy centered on “macroeconomic stability, structural reforms, infrastructure investment, and improving state capability to unlock the country’s productive capacity,” said Gondongwana.
With fiscal stability in focus, the budget also targets reducing debt-service costs and addressing critical issues like Eskom’s debt. Stabilising the economy, enhancing job creation, and advancing social services, are all at the top of the list.
Infrastructure remains a key focus in the 2025 Budget, with over R1 trillion allocated to capital spending over the next three years. Key areas of investment include R402 billion for transport, R219.2 billion for energy, and R156.3 billion for water and sanitation.
Projects such as upgrading roads, rebuilding the Passenger Rail Agency of South Africa’s infrastructure, and expanding water systems are central to driving economic growth, creating jobs, and improving public services. Public-private partnerships and innovative financing, including an infrastructure bond and credit guarantee vehicle, will further support these efforts.
Godongwana said the VAT increase could help meet persistent service delivery needs. It is expected to generate R28 billion in 2025/26 and R14.5 billion in 2026/27. After weighing alternatives like increasing corporate or personal income taxes, the VAT increase was deemed the most viable option to avoid further spending cuts and ensure essential services continue.
To cushion households from rising living costs, the government will increase social grants above inflation, expand the VAT zero-rated food basket, and keep the fuel levy unchanged, saving consumers R4 billion.
In social security, R284.7 billion is allocated to grants, with increases for the elderly, disabled, and child support. The COVID-19 Social Relief of Distress (SRD) grant will continue until March 2026, with 28 million beneficiaries set to benefit.
The South African Revenue Service (SARS) receives R3.5 billion this year and an additional R4 billion for improved tax collection. Efforts to broaden the tax base and improve compliance will help fund essential government services.
For early childhood development and education, the government allocates R10 billion to increase subsidies and expand access to early education for 700,000 more children. This investment supports the foundation for a better future workforce.
In addition to these measures, funding is set aside for critical health and security services, including a R28.9 billion boost to healthcare to retain workers and ensure adequate staffing in hospitals.
But none of these measures can be implemented without a majority vote in favour, so all eyes will be on parliamentarians for what happens next.
FEATURED IMAGE: The cost of living: South African Rands may not stretch as far if proposed VAT increase takes effect. Photo: Adobe Stock
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