March 2025 Budget Speech

Due to persistent spending pressures in healthcare, education, transport and security, the government has decided to fund these sectors because “deferring the funding of these sectors further would compromise the government’s ability to meet its constitutional obligation to the people”. Thus, the government proposes to increase the Value Added Tax (VAT) rate by:

• half a percentage point (0.5%) in 2025/26,
• with a possible additional half a percentage point (0.5%) in 2026/27.
• This will bring the VAT rate to 16% in 2026/27.

However, the minister assured South Africans that “should the spending reviews and other measures yield enough extra revenue, we will reassess the need to embark on the second half a percentage point increase on VAT”. No adjustments to personal income tax brackets, rebates and medical tax credits were made.

These proposed measures are projected to raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.

The Minister of Finance shed some light on the reasons that support the increase of VAT, among other things. He indicated that “South Africa’s income tax collections are already higher than most of our peer countries, and an increase to personal income tax would reduce taxpayers’ incentives to work and save. The decision to increase VAT is the most effective way to avoid further spending cuts and enable us to extend the social wage”.

The government is aware of the cost-of-living pressures faced by households. It is therefore taking concrete steps to protect the vulnerable by:

• providing social grant increases above inflation,
• expanding on zero-rated food items, including canned vegetables organ meats from sheep and poultry, and other animals, and
• no change in the fuel levy for another year, saving consumers around 4 billion.

In broadening the tax base and improving the administrative efficiency of the South African Revenue Services (SARS), the government will allocate R3.5 billion in the current financial year and an additional R4 billion over the medium term. This will spread the tax burden more evenly and equitably.

The learner-teacher ratio remains high, meaning more teachers are needed in classrooms. The government has thus decided to add R19.1 billion over the medium term to keep approximately 11 000 teachers in classrooms, as early childhood development is the foundation to building the next generation of citizens who will contribute economically and socially.

Spending on health will grow, shifting from R277 billion in 2024/25 to R329 billion in 2027/28 to support public health services, including free primary healthcare. The government will add R28.9 billion to the health budget to keep about 9 300 healthcare workers in hospitals and clinics and to employ 800 post-community service doctors to ensure that pharmacies do not run out of medicines.

The allocation to social grants amounts to R284.7 billion in 2025/26, allowing the government to increase:

• old age and disability grants by R130 to R2 315 in April,
• child support grants by R30 to R560 per month, and
• foster care grants by R70. R35.2 billion is allocated to the Covid-19 Social Relief of Distress (SRD), which will be extended by a year to the end of March 2026 to introduce sustainable income support for unemployed people.

Under peace and security, R9.4 billion is allocated to fund the defence force and correctional services.

The government acknowledges the challenges faced by varying groups of municipalities, which resulted in a decline in municipal services, and this will be remedied by Phase 2 of Operation Vulindlela. Operation Vulindlela was initially formed as a joint initiative between the Treasury and the Presidency to fast-track the implementation of structural reforms. In Phase 2, the institutional structure of local government will be reviewed through the updating of the white paper of local government. Reforms to the revenue-generating services of local government, namely water and sanitation, electricity and refuse removal, are underway.

Godongwana concluded, “This budget reflects our collective efforts to chart a path through difficult times to prosperity, as it represents a vision of the future and a realistic assessment of the present, as well as the options available to us right now.”