Finance Minister Enoch Godongwana delivered the highly anticipated 2025 Budget Speech, outlining a bold and pragmatic approach to addressing South Africa’s economic challenges. The speech, delivered in Parliament, focused on macroeconomic stability, structural reforms, and infrastructure investments to stimulate growth and create jobs. Here are the key takeaways from the budget announcement:
1. VAT Increase to Fund Critical Services
One of the most significant announcements was the proposed increase in Value-Added Tax (VAT). The VAT rate will rise by 0.5% in 2025/26 and another 0.5% in 2026/27, bringing the total VAT rate to 16%. This adjustment is expected to generate R28 billion in additional revenue in the first year, helping to fund pressing social and developmental needs.
Minister Godongwana emphasized that the decision was not taken lightly, but it was necessary to avoid further spending cuts and ensure the government can meet its constitutional obligations.
2. Infrastructure Investment to Drive Growth
The budget allocates over R1 trillion to infrastructure development over the next three years, with a focus on transport, energy, and water sectors. Key projects include:
- Transport and Logistics: R402 billion for road and rail upgrades, including R100 billion for SANRAL to maintain national roads.
- Energy: R219.2 billion to address electricity shortages and support renewable energy projects.
- Water and Sanitation: R156.3 billion for dam construction and water supply systems.
These investments aim to unlock the economy’s productive capacity, create jobs, and improve service delivery.
3. Eskom Debt Relief and Energy Reforms
The budget confirmed the final phase of Eskom’s debt relief package, with R40 billion allocated in 2025/26 and R10 billion in 2028/29. This move is expected to save the government R20 billion while stabilizing Eskom’s financial position.
Additionally, energy reforms under Operation Vulindlela have created a pipeline of 22,500 megawatts of projects, with over 10,000 megawatts already registered with NERSA. These projects are expected to reduce power cuts and improve energy security.
4. Social Grants and Household Support
To cushion vulnerable households from rising living costs, the budget includes above-inflation increases for social grants:
- Old age and disability grants increase to R2,315 per month.
- Child Support Grant rises to R560 per month.
- Foster care grant increases to R770 per month.
The COVID-19 Social Relief of Distress (SRD) grant will also be extended for another year, with R35.2 billion allocated to support unemployed individuals.
5. Public Sector Wages and Early Retirement Initiative
A three-year wage agreement has been reached with public sector workers, costing an additional R7.3 billion in 2025/26. The budget also includes R11 billion for an early retirement initiative, aimed at attracting younger employees into the public service.
6. Strengthening SARS and Tax Compliance
To improve revenue collection, SARS will receive R3.5 billion in the current financial year and an additional R4 billion over the medium term. The focus will be on broadening the tax base and improving administrative efficiency.
7. Fiscal Discipline and Debt Stabilization
The budget projects a primary surplus of 0.5% of GDP in 2024/25, growing to 0.9% in 2025/26. Government debt is expected to stabilize at 76.2% of GDP by 2025/26, with debt-service costs amounting to R389.6 billion in the current financial year.
The 2025 Budget Speech reflects the government’s commitment to addressing South Africa’s economic challenges through bold reforms and targeted investments. While the VAT increase may be unpopular, it is a necessary step to fund critical services and maintain fiscal stability.
As Minister Godongwana concluded, “This budget is about moving South Africa and all South Africans forward into a better, more prosperous and equitable future.”
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