South Africans have responded to the implications of the budget speech while experts have noted the balance between fiscal consolidation and economic growth, though risks remain.
South Africa’s Finance Minister Enoch Godongwana delivered the country’s 2025 Budget Speech on March 12; and strong reactions followed the minister’s announcement of the 0.5% increase to Value Added Tax (VAT) for the current financial year.
Wealth management firm, Citadel’s Chief Economist, Maarten Ackerman, said that the VAT increase of 0.5% in 2025 and another 0.5% in 2026 reflects the government’s urgent revenue needs, balanced against the political negotiations it is locked in with the other political parties in the Government of National Unity (GNU).
“Higher taxes could further constrain consumer spending and economic activity. Treasury’s decision not to adjust income tax brackets for inflation will also add to financial strain on households,” Ackerman added.
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In a statement by the Organisation Undoing Tax Abuse (OUTA), it said it was deeply concerned by the VAT announcement. The registered non-profit civil action stated that this is a regressive tax that will hit South Africans across all income levels, particularly low- and middle-income households, and is unacceptable.
“Treasury has opted for the easy option of a VAT hike rather than taking bold steps to cut waste, address inefficiencies, and tackle corruption. A VAT hike may be easy to collect, but it disproportionately impacts the poor. Government must focus on cutting waste and ending corruption before reaching into citizens’ pockets,” said OUTA CEO Wayne Duvenage.
Thomas Lobban, Director of Ibex Consulting, a division of Latita Africa, said that the budget speech is bad news for taxpayers especially when looking at the VAT increase.
“While this move was anticipated, what has come as a shock is the decision to keep personal income tax brackets unchanged for the third consecutive year,” he said.
“With no adjustments for inflation, individual taxpayers will effectively pay more tax in real terms, leading to diminished purchasing power across the board.”
Politicians also noted their concern over the budget speech with the African Transformation Movement’s (ATM) Vuyolwethu Zungula emphasizing that the problem is that government refuses to go after big corporates who are making money in South Africa.
“This does not strike the middle ground,” Zungula told the South African Broadcasting Corporation (SABC).
“Because the real impact will be when it comes to the poor. The poor now already have to be content with an increase in electricity prices, and fuel prices and we already have high interest rates.”
ActionSA’s Athol Trollip added that the economy is already struggling and this is mostly due to corruption. The political party said on X that they firmly reject the proposed 1% increase in VAT– 0.5% this year and 0.5% next year–as well as the hidden tax increase caused by the failure to adjust personal income tax brackets for inflation.
“The economy can’t grow, the minister himself said it’s been staggering for 10 years,” Trollip told reporters after the budget speech. “And because of that we have more and more people on social relief grants and that’s why the budget can’t balance.”
“While there are positive elements in the budget,” Ackerman said, “such as plans for greater public and private infrastructure spending, attempts to stabilize debt, and a seeming willingness to appease opposition partners in the Government of National Unity (GNU) as South Africa’s democracy matures – several underlying risks could derail the government’s projections, especially if execution on ambitious plans to achieve 1.8% gross domestic product (GDP) growth, falters.”
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