Finance Minister Enoch Godongwana announced an increase in VAT to address pressing spending needs in key sectors such as health, education, transport and security.

According to an article published by The Witness, the decision comes after the minister’s budget speech was postponed last month due to a lack of consensus among cabinet ministers in the Government of National Unity.

Godongwana, delivering the long-awaited 2025 Budget Speech today, said the VAT rate would increase by half a percentage point in 2025/26 and by another half a percentage point in 2026/27, taking it to 16%.

He said the decision was not made lightly, acknowledging that tax increases could impact household spending and economic growth.

“Increasing corporate or personal income tax rates would generate less revenue while potentially harming investment, job creation and economic growth,” he explained. “Corporate tax collections have already declined due to logistics constraints and rising electricity costs.”

Raising VAT, according to Godongwana, was the most viable option to prevent further spending cuts and ensure the government could meet its constitutional obligations to citizens. Alternative revenue measures, such as increasing personal and corporate income taxes or taking on additional debt, were deemed unfeasible.

The VAT increase is expected to generate an additional R28b in revenue for 2025/26 and R14.5b in 2026/27.

Social grants to increase in April

All social grants, barring the Social Relief of Distress (SRD) grant, are expected to increase from April.

According to an article published by SANews, Godongwana said the number of social grant beneficiaries – excluding those receiving the SRD grant – is expected to rise to 19 million in 2025/26 and 19.3 million in 2027/28 due to a growing population of older persons.

Godongwana said for 2025/26, social grants will be allocated R284.7b.

“As announced by the president in the State of the Nation Address, the SRD will be used as a basis for the introduction of a sustainable form of income support for unemployed people.

“The future form and nature of the SRD will be informed by the outcome of the review of active labour market programmes. This is expected to be completed by September 2025.

“The truth is that ours is one of the most comprehensive social safety nets among emerging economies. This reflects our commitment to addressing poverty and inequality, while keeping our spending sustainable,” he said.

The grant increases include:

• Old age grant will increase from R2 185 to R2 315
• War veterans grant will increase from R2 205 to R2 335
• Disability grant will go up from R2 185 to R2 315
• Foster care grant rises from R1 180 to R1 250
• Care dependency grant will increase from R2 185 to R2 315
• Child support grant will go up from R530 to R560
• The grant-in-aid will increase from R530 to R560.

In the Budget Review, the National Treasury said the budget for social grants is ‘increased by R8.2b over the medium term to account for higher costs of living’.

“An amount of R35.2b is allocated to extend the payment at the current R370 per month per [SRD] beneficiary, including administration costs,” the department said.

The Department of Social Development, which administers social grants, has been allocated R422.3b in 2025/26, which is expected to increase to R452.7b in 2027/28, at an average annual growth rate of 4.5%.

Sin taxes adjusted above expected inflation

Government will adjust the excise duties on alcohol and tobacco products at above the expected inflation rate in the 2025/26 financial year.

According to SANews, government is proposing to increase excise duties on alcoholic beverages by 6.75%, while the tobacco excise duties are expected to increase by 4.75% for cigarettes, cigarette tobacco and electronic nicotine and non-nicotine delivery systems (vaping).

The proposed increase for pipe tobacco and cigars is 6.75%.

“To ease the administrative burden of implementing adjustments on Budget Day, in future years adjustments to excise duties will take effect from April 1. Legislative provisions to deal with unusual clearances of cigarettes around budget announcements have been in place since 2021 and may be extended,” the National Treasury said.

Last November, government published a discussion paper, The Taxation of Alcoholic Beverages, for public comment.

“It proposes adjustments to the alcohol excise taxation policy framework, including the introduction of a three-tier progressive excise duty rate structure for wine and beer. Government will hold public consultations on the new excise framework in 2025.

“Considering that the details of the new alcohol excise taxation framework will be finalised only after the 2025 budget, government has proposed to increase excise duties on alcoholic beverages by 6.75% for 2025/26,” the National Treasury said.

Proposed changes in specific excise duties for the 2025/26 financial year are as follows:

• Unfortified wine: From R5.57 to R5.95 per litre.
• Fortified wine: From R9.40 to R10.04 per litre.
• Sparkling wine: From R17.83 to R19.03 per litre.
• Ciders and alcoholic fruit beverages: From R135.89 (per litre of absolute alcohol – 231.02c / average 340ml can) to R145.07 (per litre of absolute alcohol – 246.61c / average 340ml can).
• Spirits: From R274.39 per litre of absolute alcohol (R88.49 / 750ml bottle) to R292.91 per litre of absolute alcohol (R94.46 / 750ml bottle).
• Cigarettes: From R21.77 (20 cigarettes) to R22.81 (20 cigarettes).
• Cigarette tobacco: From R24.47 (50g) to R25.63 (50g).

Economic growth projected to reach 1.8% over the next three years

According to an article published by SANews, Godongwana said South Africa’s economy is projected to grow at an average of 1.8% from 2025 to 2027, despite sluggish growth over the past decade.

“[The] truth is our economy has stagnated for over a decade. In that time, GDP growth has averaged less than 2%, far below the level required to meet our expanding list of needs.

“In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8%.

“To meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration,” Godongwana said.

In the 2025 Budget Review, released by the Department of National Treasury, the department set out the reasoning for the projection.

“The medium-term outlook is supported by higher investment and household consumption, aided by a stable inflation outlook, moderate employment gains and improving household balance sheets.

“Continued easing of structural constraints will support the economy by fostering additional investment – including in infrastructure,” the department explained.

Real economic growth is forecast to reach 1.9% while the consolidated budget deficit is expected to contract from 5% of GDP in 2024/24 to 3.5% in 2027/28.

Real GDP is projected to grow to 1.9% in 2025, down to 1.75% in 2026 and back up to 1.9% in 2027.

“The growth outlook underscores the opportunity to move to a significantly faster economic growth path through sustained progress in raising investment and productivity.

“The outlook will be supported by stable macroeconomic policies, improved efficiency and competitiveness driven by structural reforms, enhanced state capability to deliver services and improved infrastructure investment over the medium term,” the review said.

Government’s plan to bolster growth and employment is anchored by:

• Maintaining macroeconomic stability and reducing volatility to reduce the cost of living and encourage investment
• Implementing structural reforms to increase efficiency and promote a competitive economy, while addressing constraints to job creation and employment
• Building state capability by identifying and solving problems in the delivery of core functions, supported by digital transformation
• Supporting growth-enhancing public infrastructure investment to increase productivity and long-term economic prospects.

“Medium-term growth will be underpinned by household consumption on the back of rising purchasing power, moderate employment recovery and wealth gains. Continued investments in renewable energy and easing structural constraints are expected to support higher investment.

“Key factors for achieving faster economic growth and creating much-needed jobs include greater collaboration with the private sector in energy and transport, rapid implementation of structural reforms, easing of regulatory constraints and increased infrastructure investment,” the department said.

Inflation is expected to rise slightly as the 0.5% VAT increase takes its toll on food prices.

“Consumer inflation is projected to average 4.3% in 2025 and 4.6% in 2026, picking up slightly as the [VAT] increase pushes up prices.

“The VAT effect is seen mainly in core inflation, which, after averaging 4.3% in 2024, is projected to rise to 4.6% in 2026. Lower global crude oil prices are expected to support muted fuel price inflation.

“Risks to the inflation outlook include upward pressure on food prices from adverse weather patterns and events resulting from climate change. Geopolitical tensions continue to cloud the fuel price outlook,” the National Treasury explained.

On the international stage, global growth is expected to stabilise at 3.3% in 2025 and 2026.

“In the short term, growth in the United States will benefit from robust consumption and investment, while China’s expansion will be supported by fiscal measures to counter investment weakness.

“Growth in Sub-Saharan Africa, the Middle East and Central Asia is expected to increase in 2025, despite the drag from commodity production cuts.

“However, geopolitical tensions – including the threat of sharpening trade disputes – alongside slow productivity gains and trade and supply chain adjustments could limit growth across regions,” the National Treasury noted.

Globally, headline inflation is projected to slow to 4.2% in 2025 and 3.5% in 2026.

“[This will be] driven by declining energy prices and cooling labour markets. Advanced economies are expected to return to their inflation targets faster than emerging economies, supported by moderating energy costs and improved labour supply.

“Inflation trends vary in emerging economies, with food inflation persisting in Sub-Saharan Africa, while China is experiencing subdued inflation given weak domestic demand,” the department said.

To read the full 2025 Budget Speech, click here.

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