Finance Minister Enoch Godongwana has unveiled South Africa’s 2025 national budget, introducing key economic reforms aimed at stabilizing the nation’s finances while increasing spending in critical areas such as healthcare, defense, and energy. However, the proposed VAT hike and budget deficit reduction plan have sparked political debate, threatening the budget’s approval in Parliament.
The government plans to increase Value-Added Tax (VAT) by 0.5 percentage points in 2025/26, with another 0.5 percentage point increase in 2026/27, bringing VAT to 16% by 2027. This marks South Africa’s first VAT increase since 2018, aiming to boost revenue for infrastructure and social services. Opposition parties, including the Democratic Alliance (DA), have strongly opposed the VAT hike, arguing it will burden lower-income households and have suggested alternative revenue-generating measures, such as selling port concessions and government cost-cutting initiatives.
An additional R28.9 billion ($1.5 billion) is allocated to the healthcare sector, focusing on increasing medical personnel, expanding HIV/AIDS treatment programs, and enhancing hospital infrastructure. Total health spending is set to rise from R277 billion in 2024/25 to R329 billion by 2027/28.
The government is allocating R5 billion ($271 million) in additional defense spending, primarily aimed at strengthening South African forces in the conflict-ridden eastern Congo, enhancing border security, and upgrading military equipment.
The government has reduced Eskom’s debt relief package by R20 billion ($1.1 billion) due to the power utility’s improved financial position. Instead of R70 billion in government loans, Eskom will receive R50 billion in 2025, bringing the total government loan assistance to R230 billion over five years. This move aims to improve Eskom’s financial sustainability while maintaining support for the energy sector.
To promote green energy initiatives, the government has set aside R1 billion ($54.27 million) for supporting local EV production, battery manufacturing, and related technological advancements. The initiative is expected to attract R30 billion in private sector investment and aligns with South Africa’s goal of transitioning to electric vehicle production by 2035.
The government aims to narrow the budget deficit from 5% of GDP in 2024/25 to 3.5% by 2027/28. Government spending is projected to increase by 5.6% annually, from R2.4 trillion in 2024/25 to R2.83 trillion in 2027/28. Treasury officials emphasize that the budget balances economic stability with growth while addressing critical social and infrastructure needs.
The proposed VAT increase faces strong opposition, particularly from coalition members, as the ANC lost its parliamentary majority for the first time since the end of apartheid. The budget’s approval remains uncertain, with potential amendments and negotiations expected in Parliament over the coming weeks.
Public reaction has been mixed. Business leaders and economists have cautiously welcomed the budget but warn of potential inflationary pressure due to the VAT hike. Parliamentary debates are expected to be heated, with opposition parties introducing counterproposals aimed at reducing reliance on tax increases. The final decision will depend on Parliament's approval, with fierce negotiations ahead.