South Africans, Prepare for Tighter Budgets: What to Expect from the 2025 Budget Speech

South Africans face tax hikes and rising costs as the budget aims to close a R300 billion gap. Higher VAT, sin taxes, and debt pose challenges, warns expert Rynhardt de Lange.

18 February 2025: As Finance Minister Enoch Godongwana prepares to deliver the much-anticipated 2025 Budget Speech tomorrow, South Africans are anxiously awaiting details on how the government plans to close its massive budget shortfall. With a projected revenue gap of R300 billion, consumers may need to brace for potential tax hikes, rising costs, and economic uncertainty.

A Tough Balancing Act

One of the key concerns heading into the budget speech is South Africa’s growing debt. The country’s debt-to-GDP ratio is expected to peak at 75.5% in the 2025/26 financial year—well above the 60% threshold typically considered sustainable for emerging markets. Additionally, the budget deficit has widened to -5.0% of GDP, reflecting the government’s continued struggle to balance its spending with revenue collection.

To bridge the shortfall, the government is considering increasing VAT, personal income tax, and corporate tax—a move that could impact consumers and businesses alike. Another potential revenue-raising tool is bracket creep, where tax brackets remain unchanged despite inflation, resulting in people paying more tax without officially increasing tax rates.

According to Rynhardt de Lange, Director and Head of Legal at Milaw Legal, South Africans should prepare for tighter budgets. “If tax increases are implemented, consumers will feel the impact almost immediately. Higher VAT will push up prices across the board, and any increase in personal income tax means less take-home pay for working South Africans,” he explained.

VAT and Zero-Rated Goods: A Double-Edged Sword

Another topic of debate is whether the government will expand the list of zero-rated items—staple goods that are exempt from VAT—to ease the financial strain on lower-income households. While this move could provide some relief to struggling families, some economists caution that reducing VAT revenue could further weaken the national budget.

Sin Tax Hikes and Their Ripple Effect

South Africans should also expect higher sin taxes on alcohol, tobacco, and sugary drinks. Last year, excise duties on alcohol increased between 6.7% and 7.2%, exceeding both inflation and industry expectations. Similar increases are expected this year, further driving up the cost of beer, wine, and spirits.

The wine industry, in particular, is sounding the alarm, as small-scale producers struggle under the weight of growing tax burdens. With 80% of South African wines containing more than 9% alcohol, they are particularly vulnerable to further tax hikes.

For smokers, the likelihood of higher excise duties on cigarettes means another hit to their wallets. However, this could also fuel the illegal tobacco market, where cheaper, untaxed cigarettes continue to pose a problem for law enforcement and legal traders.

Economic Outlook: A Cloud of Uncertainty

The looming budget speech comes at a time when South Africa is facing sluggish economic growth, ongoing power supply issues, and cautious investor sentiment. Markets remain wary of continued government spending and the risk of further debt increases, especially if GDP growth remains low.

As De Lange points out, “While the government must find ways to raise revenue, it is equally important to stimulate economic growth. Without a strong economy, increased taxation alone will not solve our fiscal challenges—it will only place further strain on consumers and businesses.”

“With less than 24 hours until the budget is unveiled, South Africans are holding their breath, hoping for measures that balance fiscal responsibility with economic relief. The reality, however, is that tough choices lie ahead,” he said.

About Milaw Legal

Milaw Legal is a debt management company committed to empowering South Africans in their battle against debt. With over a decade of expertise in financial services, the organisation offers a range of high-calibre debt relief services tailored to meet each individual's unique needs, including debt review removal, judgment removal, and affordable distribution. Guided by values of integrity, empathy, and innovation, Milaw Legal provides personalised and comprehensive legal services, ensuring clients achieve financial stability and long-term success.