Government says it feels your pain, makes a grab for more of your cash

The 2025 National Budget Speech ‘Take Two’ was one of the most anticipated events your writer can recall. Business owners, economists, journalists, politicians, and Jane and Joe Average were clustered around their preferred news feeds for the promised entertainment.

VAT hike pushed as planned

One and all wanted to know whether the Minister of Finance would cave in to public pressure and back down on the threatened 2% value-added tax (VAT) hike, and whether any of the Government of National Unity (GNU) partners would throw a fit and send the farce into double overtime? Those of you who expected fireworks or another ‘soap opera’ moment will be sorely disappointed. 

The Minister of Finance rattled off National Budget 2025 without too much opposition, addressing the 19 February 2025 cancellation early on. “The postponement of the tabling of the Budget three weeks ago was a regrettable but perhaps an understandable feature of multiparty governance,” he said. “As much as the [subsequent] debate has been dominated by the proposed increase to VAT, the bigger debate must be about how we grow the economy for the benefit of the majority.” 

Full of upbeat promises

The Minster’s presentation was full of upbeat promises and undertakings. He highlighted the need to refocus the country on achieving economic growth and said that South Africa was still on track for a 0.5% budget surplus for 2024/25 and 0.9% by 2025/26. 

But the elephant in the room remains the R389.6 billion debt servicing cost for the current year. Haul out your calculator, dear reader, and compute the staggering R1.07 billion we pay each day, weekends included, to keep our creditors at bay. Debt service costs jump to the second biggest expense category in 2025/26, behind education. 

There were some rather chunky expenditure announcements to bolster ailing infrastructure over three years including R402 billion for transport and logistics; R219.2 billion for energy infrastructure, and R156.3 billion for water and sanitation, with some apparently welcome news for the private sector. “To further accelerate infrastructure delivery and effectiveness, we are continuing reforms to facilitate greater private sector participation, capital budgeting reform, and alternative infrastructure financing,” the Minister said. 

An interesting development was the promise to fast track alternative financing arrangements that the Minster said would include a “credit guarantee vehicle to mobilise private sector capital by derisking projects” from 2026, and a soon-to-be-issued government infrastructure bond. 

How did the Finance Minister balance the budget?

There was some cost cutting; but the bulk of the balancing, it seems, will come from the revenue side, when you and your clients visit the tills, or pick up your payslips. 

One clever trick was to reshape and reduce the debt relief package promised to Eskom. Instead of giving it another R70 billion, National Treasury cited the parastatals improved financial outlook as reason to lop R20 billion or so from that total, drip feeding it R40 billion in 2025/26 and just R10 billion more in 2028/29. Your writer could not resist a slight chuckle; a firm that has improved its financial position is still swallowing billions in taxpayer money. 

The thing ‘top of mind’ among the financial and risk advisers who make up our readership, was the second version of the 2025 National Budget Revenue and Tax Proposals. VAT goes up by 0.5% to 15.5% from 1 May this year, and by another 0.5% in the following year, bringing VAT to 16% from 1 April 2026. Kyle Mandy, PwC South Africa Tax Policy Leader, said that increasing VAT was less harmful to the economy compared to many other tax options, and that is also one of the easier taxes to administer. 

The Minister then went on to explain that in the context of them needing more cash, VAT was the best way to do so. “Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation, and economic growth,” the Minister said. This in acknowledgement of the so-called Laffer effect, which sees less revenue collection gains reduce as income taxes are raised. “In our view, the VAT hike will still hit households, despite more items being zero VAT rated and an extension of the fuel levy relief,” said Sanisha Packirisamy, Chief Economist at Momentum Investments. The sugar tax was left unchanged too. 

The best of a bad set of alternatives

She was not, however, prepared to bash this revenue collection mechanism, saying that “outside of higher economic growth or a further scaling back of expenditure, a VAT rise is the most effective way to fund rising social spending pressures without further widening the deficit.” Efficient Group economist, Dawie Roodt agreed, in part, saying that, “we have a high tax burden on the economy, and we cannot increase income taxes further.” He warned, however, that the VAT hike was unlikely to generate as much revenue as forecast. 

The Minister fired a second broadside at the consumer segment that had underpinned the paltry 0.6% GDP growth in 2024, grabbing another R28 billion or so over three years by not adjusting income tax brackets. That dear reader, means you and your clients will pay more income tax as inflation pushes your salaries higher. “While the biggest debate from today’s 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,” said Jurgen Eckmann, Wealth Manager at Consult by Momentum. 

Eckmann offered the following example of bracket creep in action. Let’s say someone earns R30875 per month before tax (or R370500 per year). Should they receive a 7% inflationary annual increase from their employer, this will shift them into a new tax bracket. Without Treasury providing for this and adjusting the brackets, this means that the person who now earns R33078,75 per month before tax will now pay R83419 in annual income tax, which is almost R10000 more in tax than they would have paid in the previous year. Their net salary would have increased by 5.65%, their tax bill would have jumped by 13.15%. That was a scary post-speech moment. 

Government workers in the pound seats

Those employed by the South African Revenue Services (SARS) need not stress. The latest budget promised SARS an additional R3.5 billion in 2025/26 and R4.0 billion more over the medium term to “broaden the tax base and improve [its] administrative efficiency.” To the common person, this probably translates as hiring more people and paying them more. 

Public sector workers seem safe too. According to Packirisamy, government’s wage bill accounts for over 30% of non-interest expenditure. She adds that if the unions are successful in moving government’s 5.5% wage offer up by 0.5%, the wage bill overrun will come in at over R23 billion. There are bigger problems, because Roodt warned that the 2025/26 revenue estimate is likely too high, given the optimistic 1.9% GDP growth prediction. “The minister is too optimistic on revenue, and on expenditure, and that means his fiscal debt projection will be out too,” he said. 

Returning to the budget presentation, there were some other minor revenue tweaks including no inflationary adjustment to medical tax credits and an above-inflation increase in excise duties on alcohol and tobacco products. Neither of these changes were unexpected. Medical schemes are ‘persona non grata’ under the emerging National Health Insurance legislation, and the sin taxes are always fair game. On the sin taxes, Roodt warned that ‘legal’ stuff was getting too expensive, forcing more and more low-income households to buy black-market goods. 

A hearty LOL moment

The LOL moment from the speech, at least in the written version, was the comment that, “No Minister of Finance is ever happy to increase taxes.” Yeah. Whatever. More accurately, no Minister of Finance is prepared to slash overhead from a bloated Cabinet or reduce the wages of an overpaid (and arguably overstaffed) public sector. As the dust settles, you will realise that almost all of the R72 billion in extra revenue generated by the latest budget will come from households. Businesses will, after all, pass much of the increase on down the chain. Roodt concluded that the budget may yet be voted down in Parliament, so watch this space. 

Writer’s thoughts:
The revenue and tax proposals in the 2025 National Budget mean that you and your clients will be paying more income tax, and chipping in more VAT on goods and services. Are you concerned about the impact of fiscal drag and VAT on your clients’ finances? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.