South Africa’s Budget 2025: Taxpayers Face R300 Billion Squeeze

Finance Minister Enoch Godongwana is preparing to deliver South Africa’s 2025 Budget Speech on Wednesday, 19 February, amid a massive R300 billion budget shortfall. With rising debt and sluggish economic growth, taxpayers could face significant financial pressure as the government seeks additional revenue.

The Growing Budget Deficit

South Africa’s debt-to-GDP ratio is projected to peak at 75.5% in 2025/26—far above the 60% sustainability threshold for emerging markets. Experts warn that ongoing fiscal slippage, coupled with weak economic growth, is exacerbating the country’s financial crisis.

According to Investec Chief Economist Annabel Bishop, South Africa’s budget deficit has widened to -5.0% of GDP, up from -4.5%. She highlighted that declining GDP growth and inflation shortfalls are likely to further strain the country’s finances.

How the Government Plans to Raise R300 Billion

The government is exploring various tax increases to close the revenue gap. Potential measures include:

Personal Income Tax Bracket Creep

Instead of directly increasing personal income tax rates, the government may leave tax brackets unchanged. This would push more taxpayers into higher brackets as their incomes rise with inflation, leading to higher tax payments.

Value-Added Tax (VAT) Hike

While politically sensitive, an increase in VAT has been considered. However, experts note that raising VAT from its current 15% level would disproportionately impact lower-income households.

Wealth and Corporate Taxes

Discussions are ongoing regarding potential adjustments to capital gains tax, dividend tax, and high-net-worth individual taxation. However, these measures could drive capital flight as wealthy individuals seek tax havens abroad.

Medical Aid Tax Credit Reductions

There is speculation that the government may cut or eliminate medical aid tax credits to fund the National Health Insurance (NHI) scheme, adding further financial strain on middle-class taxpayers.

Will VAT Exemptions Be Expanded?

In response to economic hardships, there is speculation that the list of zero-rated VAT items could be expanded. Currently, the zero-rated list includes 19 essential food items such as brown bread, maize meal, and rice.

However, Deputy Finance Minister David Masondo has cautioned that any expansion could reduce VAT revenue, which might undermine existing pro-poor government programs.

Economic Risks of Higher Taxes

Economists warn that raising taxes could backfire by reducing compliance and driving capital outflows.

Dawie Roodt has previously cautioned that South Africa’s high tax burden is already prompting businesses and high-net-worth individuals to relocate abroad. A wealth tax or further income tax hikes could accelerate this trend, reducing overall tax revenues.

Will Government Cut Spending Instead?

Most economists agree that reducing government spending is the most effective way to address the deficit. However, political resistance to austerity measures makes deep spending cuts unlikely.

What to Expect from the 2025 Budget Speech

As Godongwana prepares to deliver the 2025 Budget Speech, South Africans are bracing for potential tax hikes and policy changes that could significantly impact their financial stability. Whether through bracket creep, VAT adjustments, or targeted tax increases, taxpayers are expected to bear the burden of closing the country’s budget gap.

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