Warning of tough financial times ahead for South Africans

Finance Minister Enoch Godongwana presented the revised budget to Parliament on Wednesday, three weeks after his first version was withheld at the last minute because it included a two-percentage-point VAT hike that was widely rejected.

The new version proposed raising VAT by one percentage point to 16 percent by the 2026/27 financial year, Godongwana said.

He said this would be done in two steps: a 0.5-point increase for the 2025/26 period and another for the following year.

Malusi Ndlovu, Managing Executive, Advice and Investments at Absa said the minister faced a challenging task in balancing the budget, given South Africa’s limited fiscal space and muted economic growth.

“I believe individuals will find it increasingly difficult to balance their monthly budgets in the medium to long term. Firstly, tax brackets were not adjusted for bracket creep, which could result in lower take-home pay for some individuals,” he said following the tabling of the proposed budget. 

“On the expenditure side, the VAT increase, rising by 0.5% now and again by another 0.5% next year, will make everyday goods more expensive at the checkout. Additionally, businesses will incur implementation costs to accommodate the VAT hikes, which will likely be passed on to consumers.” 

The economy grew by only 0.6 per cent in 2024, held back by failing infrastructure, including massive power outages blamed on years of corruption, mismanagement and theft. 

The majority of the political parties represented in Parliament, including the DA, MK Party and EFF, have indicated that they won’t support the budget in its current form.

The DA said that in its current form, the budget means "the people of South Africa will be poorer, and the future of the government is at risk”.

It accused the ANC of not heeding warnings against tax increases.

It would not give Godongwana's budget the majority vote in Parliament that it would need to pass.