South Africa’s economic trajectory continues to raise alarm as the National Treasury projects a sluggish real GDP growth rate of just 1.7% over the Medium-Term Expenditure Framework (MTEF) period. Deep-rooted structural constraints, declining investor sentiment, and chronic issues in the energy and logistics sectors have compounded to restrict the country’s ability to stimulate robust economic activity.

The long-awaited 2025 Budget Speech, delivered by Finance Minister Enoch Godongwana, was delayed twice due to political turbulence and legal action. The initial delay followed a legal dispute regarding the constitutionality of a proposed VAT hike, and the second stemmed from coalition disagreements over the same. Eventually, the VAT increase was scrapped entirely—paving the way for a budget that leans heavily on indirect revenue measures and fiscal drag.

To make up for the revenue shortfall left by the abandoned VAT hike, the Treasury implemented fiscal drag, keeping personal income tax brackets unadjusted for inflation. This means that even with no increase in nominal earnings, many South Africans will pay more in taxes. This measure alone is projected to raise R49.4 billion over the next three years.

Additional revenue will be sourced from:

• Excise duty increases on alcohol and tobacco, expected to yield R5.8 billion.
• A freeze on medical tax credit inflation adjustments, subtly increasing the tax burden on middle-class families.
• Inflation-linked increases to the fuel levy, spreading tax obligations across a wider base and avoiding targeted backlash.

While these policies may ease short-term fiscal pressures, critics argue they fall short of solving the deeper issues afflicting South Africa’s economy.

Dissent from Economists and Public Discontent

Notably, Theuns du Buisson of the Solidarity Research Institute denounced the budget as fundamentally flawed. According to him, the policy of taxing higher earners—some of whom earn just under R8,000 per month—as if they are wealthy is misguided. He argues that such measures reduce disposable income, harming consumer spending and, by extension, economic growth.

“This budget continues the pattern of redistribution at the expense of economic expansion,” Du Buisson remarked. “With 60 cents of every rand being spent on social relief and welfare, the sustainability of such a model is questionable.”

He further contended that growth—not more taxation—is the answer to South Africa’s fiscal challenges. “If the economy grew by 4%, we wouldn’t need to raise taxes at all,” he noted.

Concerns About the Future

Adding to the concern, UASA, one of South Africa’s largest trade unions, expressed alarm over looming tax increases in 2026. The Treasury plans to introduce R20 billion worth of new tax measures in the next fiscal year, which could further pressure already overstretched consumers and businesses.

“We are deeply concerned about the impact of additional taxes on the working class,” said UASA spokesperson Abigail Moyo. “While the current measures are already burdensome, what lies ahead could be even more damaging.”

Private Sector as a Beacon of Hope

Amid these challenges, there is cautious optimism surrounding private sector involvement in infrastructure development. Analysts note that increased business-led investment in transport and logistics infrastructure could help alleviate some of the systemic inefficiencies throttling economic productivity.

If successfully implemented, such partnerships could also pave the way for renewed investor confidence and help the country slowly transition toward long-term stability.

Conclusion

South Africa’s 2025 Budget reflects a government caught between political limitations and economic realities. While it attempts to address fiscal gaps through strategic tax measures, it stops short of initiating bold reforms that could drive sustainable growth. With structural challenges still unresolved and additional tax burdens on the horizon, the road ahead remains uncertain. However, collaboration between the state and private enterprises may offer a lifeline in an otherwise bleak economic outlook.