A Pocket Guide To Budget 3.0
By Jessie Taylor
South Africa’s latest budget, presented by Finance Minister Enoch Godongwana in May 2025, arrives at a critical juncture marked by economic uncertainty, political friction, and rising living costs. While the budget aims to balance fiscal discipline with social support, its implications for everyday South Africans are multifaceted, affecting everything from fuel prices and taxation to social grants and public services. South Africa’s 2025 budget journey has been anything but straightforward. Initially tabled in February, the budget faced significant political resistance, particularly concerning a proposed 2% increase in Value-Added Tax (VAT). This opposition led to a postponement and subsequent revisions, culminating in what has been termed “Budget 3.0”. This final iteration reflects a series of compromises aimed at balancing fiscal responsibility with socio-economic realities.
South Africa’s 2025 budget journey has been anything but straightforward. Initially tabled in February, the budget faced significant political resistance, particularly concerning a proposed 2% increase in Value-Added Tax (VAT). This opposition led to a postponement and subsequent revisions, culminating in what has been termed “Budget 3.0”. This final iteration reflects a series of compromises aimed at balancing fiscal responsibility with socio-economic realities.
Here’s how the new budget could affect your pocket:
Temporary Reprieve Of The VAT Hike Reversal
Initially, the government proposed a phased increase in the Value-Added Tax (VAT) rate, intending to raise it by 0.5 percentage points in 2025 and another 0.5 percentage points in 2026, elevating the rate from 15% to 16% over two years. This move aimed to generate approximately R13.5-billion in additional revenue during 2025. However, the proposal faced significant opposition from coalition partners and the public, leading to its reversal in April 2025. While this decision provided immediate relief to consumers, it also resulted in a R75 billion shortfall in the national budget.
Silent Tax Increase
While the VAT increase was withdrawn, the budget did not adjust personal income tax brackets for inflation. This omission results in “fiscal drag,” where taxpayers pay a higher effective tax rate despite no real increase in income. For example, an individual earning R33 078.75 per month will see their annual tax liability increase by nearly R10 000, effectively reducing their disposable income and purchasing power.
Fuel Levy Increase
To compensate for the revenue gap left by the scrapped VAT hike, the government increased the general fuel levy by 16 cents per litre for petrol and 15 cents per litre for diesel – the first such increase in three years. This adjustment is expected to generate R3.5 billion in 2025/26. However, it indirectly affects consumers by raising transportation costs, which can lead to higher prices for goods and services across the economy. The Economic Freedom Fighters (EFF) have challenged this increase in court, arguing that it disproportionately impacts the working class and that proper parliamentary procedures were not followed.
Higher Costs For Alcohol and Tobacco
The budget introduced significant increases in excise duties on alcohol and tobacco products, exceeding the rate of inflation. These “sin taxes” are designed to discourage consumption of these products and generate additional revenue. For consumers, this translates to higher prices for alcoholic beverages and cigarettes, impacting household budgets.
Incremental Social Grant Increases
Recognising the financial strain on vulnerable populations, the budget includes above-inflation increases in social grants. The old age and disability grants have been raised to R2,315, while the child support grant has increased to R560. Additionally, the COVID-19 Social Relief of Distress grant has been extended for another year, providing continued support to those affected by the pandemic’s economic fallout. While these increments provide some relief, they may not fully offset the rising cost of living, especially considering other budgetary measures that indirectly increase expenses.
Healthcare and Defence: Strategic Allocations
In response to reduced international aid, particularly from the USA, the government allocated an additional R28.9 billion to healthcare, focusing on expanding HIV treatment programmes and supporting medical personnel. Additionally, R5-billion was earmarked to strengthen military capacity amid regional instability. These allocations aim to bolster essential services but also contribute to the overall fiscal pressure.
Implications For Small and Medium Enterprises
The budget presents a mixed bag for small and medium enterprises (SMEs). On one hand, the withdrawal of the VAT increase alleviates immediate cost pressures. On the other, the lack of personal income tax relief may reduce consumer spending, potentially impacting sales. However, increased infrastructure spending and new public-private partnership regulations could open up opportunities for SMEs to participate in government contracts and projects.
The National Treasury projects economic growth of 1.4% for 2025, down from the 1.8% forecasted in March. This subdued growth is attributed to global economic uncertainties and domestic challenges, including high unemployment and energy supply constraints. This slower growth, coupled with increasing debt servicing costs, limits the government’s ability to invest in infrastructure and social services. The budget deficit is expected to widen to 4.8% of GDP, and gross debt is projected to stabilise at 77.4% of GDP in 2025/26.
These figures underscore the delicate balance the government must maintain between stimulating growth and managing debt. The budget aims to address these issues through structural reforms and targeted investments, but the path to robust growth remains fraught with obstacles. Budget 3.0 presents a complex landscape for South African consumers. While certain measures, like the reversal of the VAT hike and increased social grants, offer immediate relief, other adjustments, such as the fuel levy increase and unadjusted tax brackets, impose additional financial burdens. For consumers, this means carefully managing personal finances in an environment of cautious optimism and ongoing economic adjustments.
Sources: BusinessTech | Sanlam | AllAfrica | Bizcommunity
