As expected, the budget expects South Africans to continue to pay more.
The revised budget speech was not kind to consumers when it comes to taxes, with VAT increasing by 0.5% on 1 May and personal income tax brackets and medical credits remaining the same, meaning consumers will pay even more tax. At least the fuel levy was left intact for the fourth time.
Joubert Botha, head of the tax and legal practice for KPMG in Southern Africa, says it was an eventful budget. “After almost a month of postponement, the minister of finance revealed in Budget 2025 that our revised tax revenue is R1.8 trillion, R16.7 billion less than what was budgeted for, mainly due to our import tax and fuel levy.”
Government will continue to protect and broaden the tax base, he says, which means consumers will continue to pay. “There will be no inflationary adjustments to personal income tax brackets, rebates and medical tax credits, resulting in an additional R19.5 billion in revenue. Excise duties on tobacco and alcohol products will be adjusted above the expected inflation rate to R1 billion of additional revenue.
“The most talked and speculated about VAT increase of 0.5% this year and 0.5% next year will result in an additional R13.5 billion in revenue. However, steps are taken to protect vulnerable households, which includes providing social grant increases above inflation, expanding the basket of VAT zero-rated goods and no increase in the fuel levy for another year.”
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Concern about tax brackets in budget speech
Jurgen Eckmann, wealth manager at Consult by Momentum, says while the biggest debate from the budget will no doubt centre around the VAT increase, the reality is that the minister’s announcement regarding the personal income tax brackets not being adjusted for inflation also has severe implications on the consumer purse.
“While there were no overt personal income tax increases, this lack of inflationary adjustment (and bear in mind, this is the second consecutive year this has happened) means that South Africans will ultimately take home less pay, especially if their annual increases push them into a new tax bracket.
“If the minister adjusted the brackets, consumers would still pay more in tax but it would be in line with their increases. For example, if someone earns R30 875 per month before tax (R370 500 per year) and receives a 7% inflationary annual increase it will shift the employee into a new tax bracket.
“Without Treasury providing for this and adjusting the brackets, this means that the person will now pay R83 419 in annual income tax, which is almost R10 000 more in tax than the previous year, when it would have been R73 726.”
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What budget holds for households
Bertie Nel, head of financial planning and advice at Momentum, says one of the key takeaways from the budget is the 0.5% increase in VAT, which, although lower than initially anticipated, will still affect consumers.
Nel explains that for an average household spending R10 000 per month, the VAT adjustment equates to an additional R50 in expenses. While this is significantly less than a potential 2% increase, it still places strain on lower-income households.
“Interestingly, government chose not to adjust personal income tax brackets for inflation. This means taxpayers will not face additional direct taxation, but their purchasing power may gradually erode due to rising costs. Similarly, there are no new tax incentives for individuals or businesses, leaving many to navigate the financial landscape without additional relief measures.”
Nel points out that while the budget offers no dramatic tax increases, it also provides no significant relief for individuals and businesses. “As economic pressures persist, strategic financial management will be essential for both households and companies looking to maintain financial health in the coming year.”
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Budget offers no relief for consumers struggling with debt
Neil Roets, CEO of Debt Rescue, says he understands that the minister faces numerous challenges, including a turbulent economic landscape, crumbling infrastructure, currency volatility, global trade tensions and an astronomical budget deficit.
“I commend the focus on public infrastructure spending in the amount of R1 trillion, for transport and logistics, energy infrastructure and water and sanitation. This will make life easier for most South Africans. However, it is a long process that will not immediately improve the lives of people.
“The reality is that many citizens are struggling under the weight of existing debt due to consistently high inflation and interest rates that remain too high. It is essential that government considers more aggressive support strategies for consumers facing financial distress.
“Taxing the workforce to death is not the answer and a 0.5% VAT increase, even if it seems minimal, will have a devastating effect on all South Africans, especially as it coincides with the 12.7% electricity tariff increase that kicks in on 1 April 2025.”
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Smaller VAT hike probably more palatable for consumers
Jee-A van der Linde, senior economist at Oxford Economics Africa, says the proposed incremental VAT hikes will likely be more palatable for consumers and are arguably more sustainable from an economic perspective.
“However, it does not take away from the fact that the government is increasingly relying on people to pay their taxes. Moreover, officials have yet to produce a permeant revenue stream to fund the R35.2 billion social relief of distress (SRD) grant.
“If government decides to extend the SRD grant by another year, Treasury will face the same budget predicament next year,” he warns.
Frank Blackmore, lead economist at KPMG South Africa, says it will be a tough budget over the short-term. “There were no income tax bracket adjustments, which means although your real income remained the same over the past two years, you could find yourself in a higher income tax bracket due to that non-adjustment, while there is no respite regarding the rebates, as well as medical tax credits on that count.
“In addition, the increase in VAT to 16% over the next two fiscal cycles will mean that your disposable income has decreased and, of course, is regressive in its understanding that both richer households as well as poorer households buying goods subject to the same amount of VAT and therefore the incidence falls on the lower middle and lower income groupings in South Africa. From that perspective, this isn’t a great budget.”
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Compromises between GNU parties
Tertia Jacobs, treasury economist at Investec, says some compromises between the political parties were evident in the budget. “The net increase in expenditure was smaller, which in turn allowed for a smaller VAT increase.
“However, with the VAT proposal of 0.5% for this year and another 0.5% for next year, Treasury still needed to raise additional revenue and that was by not adjusting the tax brackets for individuals. The implication on the tax side is that disposable income of households will remain under pressure.”
