South Africa’s 2025 Budget features a VAT increase to 16% over two years, significant allocations for health and social services, and aims for R1 trillion in infrastructure investment. Key reforms focus on increasing expenditure efficiency and tackling recovery backlogs.
Finance Minister Enoch Godongwana presented South Africa’s 2025 Budget to Parliament following extensive discussions among Cabinet ministers, who had previously rejected a version lacking a proposed VAT increase. The Budget was initially delayed due to disagreements within the Government of National Unity over the 2% VAT hike.
Key revenue proposals include a 0.5 percentage point increase in the VAT rate in both 2025/26 and 2026/27, raising it to 16%. Notably, there will be no inflation-driven adjustments to personal income tax brackets or medical tax credits. These changes are expected to raise R28 billion and R14.5 billion in revenues for the respective fiscal years. Additionally, R3.5 billion is allocated to the South African Revenue Service (SARS) this year and R4 billion over the medium term.
The Budget allocates R232.6 billion in additional funding over the medium term, with provinces receiving R2.4 trillion through the Medium-Term Expenditure Framework. Local government equitable shares will increase from R99.5 billion to R115.7 billion by 2027/28. A new public sector wage agreement adds R7.3 billion to expenditures in 2025/26, while R10 billion will be directed to Early Childhood Development subsidies. Health spending is set to rise from R277 billion to R329 billion by 2027/28, and social grants will see increments for various categories. A R35.2 billion extension for COVID-19 Social Relief of Distress has also been approved, alongside R9.4 billion for defense and correctional services.
Infrastructure investment is set at R1 trillion over the next three years, with R402 billion earmarked for transport and logistics, R219.2 billion for energy, and R156.3 billion for water and sanitation initiatives. New Public-Private Partnership (PPP) regulations will take effect on June 1, 2025, alongside a reconfiguration of the Budget Facility for Infrastructure to accommodate multiple bidding processes. The first infrastructure bond is planned for issuance in the 2025/26 fiscal year.
A comprehensive strategy will involve Treasury leading initiatives to enhance spending effectiveness. Measures include auditing for “ghost workers” in government departments and implementing recommendations from conditional grant reviews. Furthermore, R1.7 billion is allocated for future disaster preparations and R4 billion for addressing recovery backlogs.
The 2025 Budget for South Africa outlines a significant increase in VAT and additional funding across key sectors including healthcare, social services, and infrastructure. The planned R1 trillion investment over three years covers essential areas such as transport, energy, and sanitation. Commitment to improving public sector efficiency and managing disaster preparedness reflects a forward-looking approach to fiscal policy.
Original Source: allafrica.com
