The 2025 budget elicited a mixed response from economists, who acknowledged its measures to promote economic growth and fiscal discipline but expressed concerns over increased financial burdens on consumers due to tax hikes and a lack of personal income tax relief.

The revised budget introduced a VAT increase of 0.5 percentage points in each of the next two years, raising the rate to 16% by 2026/27. The measure aimed to generate R28 billion in 2025/26 and R14.5 billion in 2026/27. Analysts warned of the gradual impact on household spending, noting that despite an expanded list of zero-rated items and social grant increases, consumers would likely feel the strain.

While the budget incorporated pro-growth initiatives, personal income tax revenue of R811 million remained significantly lower than the public sector wage bill of R822.8 billion, while debt service costs of R424 billion exceeded corporate income tax revenue of R331 billion. The lack of inflationary adjustments to tax brackets and rebates was projected to generate an additional R19.5 billion, though at the expense of disposable income for taxpayers.

Government allocations of R402 billion for transport and logistics, R219 billion for energy, and R156 billion for water and sanitation were seen as positive developments. However, concerns persisted about the implementation of these projects, as budgeting does not guarantee execution. Pundits noted that while fiscal consolidation remained a government priority, adjustments such as a phased-in VAT hike and spending reallocations largely met expectations and could have a positive impact on financial markets—provided they gained sufficient support from the government of national unity (GNU).

Despite these adjustments, some economists remained critical, highlighting the long-term economic stagnation that had negatively affected South Africans. Critics argued that the government continued to spend recklessly despite fiscal constraints. While additional spending plans required new funding sources, reducing irregular, unauthorised, and wasteful expenditures could have helped mitigate the need for a VAT increase. A failure to create a business-friendly environment contributed to rising unemployment, while social grant recipients surged to 27.1 million, costing the state R267 billion in the 2025 fiscal year.

Agricultural growth remained constrained due to deteriorating logistics infrastructure, such as damaged roads that increased operational costs. Further investments in rail and road networks would be crucial for expanding the agricultural sector as outlined in the Agriculture and AgroProcessing Master Plan (AAMP), a collaborative initiative between the government, agribusiness, labour, and civil society.

Economists underscored that while the budget pursued fiscal sustainability, trade-offs could hinder economic activity. If tax revenue fell short of planned expenditures, the government faced three choices: reduce spending, raise additional revenue, or incur more debt. Over the past 15 years, the government had primarily opted for increased borrowing, resulting in high interest payments and rising debt levels. 

2025 budget highlights

Bottom line:

Without the luxury of being able to reduce taxes to support consumers, we believe that lowering interest rates is the best way to provide assistance. Lower interest rates will not only support consumers but also stimulate growth in other sectors and potentially reduce the costs associated with issuing government bonds. We look forward to the Monetary Policy Committee’s (MPC) statement this Thursday.

Macroeconomics in Brief