South Africa’s Budget Speech 2025: VAT and SRD Grant Hangs in the Balance
Contents
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Below is a simplified, easy‑to‑read summary of the 2025 Budget Speech, with key points grouped by theme and tables highlighting important numerical details.
1. Budget Speech 2025 Overview & Context
- Budget Setting & Debate:
The speech explains that the tabling of the Budget was delayed, which spurred a broad public debate on funding priorities and policy trade‑offs. The central message is that, while VAT increases have been much discussed, the focus must be on creating faster and more inclusive economic growth. - Economic Challenges:
South Africa’s economy has been stagnant for over a decade with very low GDP growth. The government’s goal is to boost growth so that more fiscal space is created for developmental spending.
2. Fiscal Strategy and Macroeconomic Stability
- Balanced Fiscal Approach:
- The government targets a primary surplus of 0.5% of GDP in 2024/25, growing to 0.9% in 2025/26.
- Debt is expected to stabilize at around 76.2% of GDP (2025/26) with a narrowing deficit (3.5% by 2027/28).
- Debt-Related Savings:
Simplification of Eskom’s debt relief measures (reducing the final phase from R70 billion to a combination of R40 billion in 2025/26 and R10 billion in 2028/29) is expected to save approximately R20 billion.
3. Pillars for Faster, Inclusive Growth
The Budget Speech 2025 government’s strategy to boost growth rests on four main pillars:
- Macroeconomic Stability: Ensuring stable prices and low interest rates.
- Structural Reforms: Removing obstacles to growth (e.g. electricity supply, water quality, digital communication, logistics, and visa regulations).
- Improving State Capability: Enhancing the effectiveness of public services and government operations.
- Accelerating Infrastructure Investment: Expanding transport, energy, and water networks.
Examples of reforms include:
- A 22,500‑megawatt pipeline of energy projects
- Approved freight logistics roadmap
- Significant reduction in the cost of data
- Improvements in water regulation and visa systems for tourism and investment
4. Infrastructure Investment
Infrastructure is viewed as a key driver for economic development, job creation, and service delivery. Over the next three years, public infrastructure spending will exceed R1 trillion, focusing on three sectors:
| Sector | Allocation |
|---|---|
| Transport & Logistics | R402 billion |
| Energy Infrastructure | R219.2 billion |
| Water & Sanitation | R156.3 billion |
Additional highlights include:
- Roads & Rail: SANRAL is allocated R100 billion for road maintenance, with provincial departments resealing over 16,000 lane‑kilometres and PRASA receiving extra funds for signalling upgrades and rolling stock renewal.
- Water Projects: Major dam projects like the Mkhomazi and Berg River‑Voëlvlei schemes are set to enhance water supply security.
- Public‑Private Partnerships (PPPs): New regulations aim to streamline PPP processes and encourage private investment in infrastructure.
5. Revenue & Tax Measures
To fund spending priorities, the government proposes:
- VAT Increase:
- Increase VAT by 0.5 percentage points in 2025/26 and again by 0.5 points in 2026/27, bringing it to 16% by 2026/27.
- Other Tax Measures:
- No adjustments will be made to personal income tax brackets (to avoid discouraging work and saving).
- Focus on broadening the tax base and improving SARS’ efficiency by increasing funding for tax administration.
| Measure | Impact |
|---|---|
| VAT Increase | Raises R28 billion in 2025/26 and R14.5 billion in 2026/27 |
| Income Tax | No inflationary adjustments to brackets |
To ease the burden on households, the government will also:
- Increase social grants above inflation.
- Expand the list of VAT zero‑rated food items.
- Keep the fuel levy unchanged for another year.
6. Spending Priorities
The additional revenue will help channel approximately R232.6 billion into key areas over the medium term:
- Key Funding Areas:
- Infrastructure: Continued investment in roads, energy, and water projects.
- Social Protection: Enhancements in social grants, healthcare, and education.
- Public Service Wages: Implementation of a three‑year wage agreement and early retirement initiatives to attract new talent.
- Local Government: Increased equitable shares to support free basic services for poor households.
Allocation Timeline (Medium Term):
| Fiscal Year | Additional Funding Allocation (R billion) |
|---|---|
| 2025/26 | 102 |
| 2026/27 | 68 |
| 2027/28 | 62 |
7. Key Sector Allocations
- Education & Early Childhood Development (ECD):
- Additional funds to maintain teacher numbers and upgrade the ECD subsidy from R17 to R24 per child per day.
- Health:
- Health spending will grow from R277 billion to R329 billion by 2027/28.
- Extra funding allocated to retain healthcare workers and ensure the supply of medicines.
- Social Security:
- Increases in social grants (old age, disability, child support, foster care).
- Extension of COVID‑19 relief measures (Social Relief of Distress) through March 2026.
- Peace & Security:
- R9.4 billion is allocated to defence and correctional services.
- Additional funds support international peacekeeping and regional security commitments.
8. Improving State Capability and Efficiency
- Public Sector Reforms:
- Initiatives to audit “ghost workers” and rationalize public employment programmes.
- A comprehensive review of conditional grants to reduce duplication and improve efficiency.
- Measures to enhance disaster resilience with dedicated funds for emergency response and recovery.
- Local Government Support:
- Reforms and increased funding aim to strengthen local services such as water, electricity, and waste management.
9. Budget Speech 2025 Conclusion
The 2025 Budget Speech sets out a vision for a more stable and inclusive economic future. The policy choices—balancing fiscal discipline with strategic investments—are designed to:
- Drive faster, more inclusive economic growth.
- Strengthen public infrastructure and service delivery.
- Build a more capable, efficient state that meets the needs of all South Africans.
The speech concludes with gratitude to government partners and the people, emphasizing that these measures are about securing better material benefits and a prosperous future for everyone.
