The 2025 national budget brings a mix of financial relief and added strain for South Africans. According to Chief Risk Officer at Standard Bank, the government aims to stabilise public finances. However, certain tax adjustments and economic policies will affect the cost of living, placing additional pressure on households. Understanding these changes is essential for consumers looking to manage their finances effectively.

Key Budget Changes and Their Impact

VAT Increase – The Cost of Living Rises

One of the biggest takeaways from this year’s budget is the increase in Value-Added Tax (VAT). The standard VAT rate will rise from 15% to 15.5% on May 1, 2025, with a further increase to 16% in 2026.

While essential food items remain VAT-exempt and a few additional products have been added to the exempt list, most everyday goods and services—from electricity and transport to clothing and household necessities—will become more expensive. The impact will be felt most by low- and middle-income earners, as VAT disproportionately affects those who spend a larger portion of their income on necessities.

Income Tax Bracket Freeze – Paying More Without a Rate Hike

Although personal income tax rates have not increased, the government has opted to keep tax brackets unchanged. This means that as salaries increase due to inflation, more individuals will move into higher tax brackets—leading to higher tax payments even though their real purchasing power remains the same.

This policy will affect middle-income earners the most, as they may find that salary increases are offset by higher tax obligations, reducing their take-home pay.

Fuel Levies – A Small Relief for Motorists

In a rare bit of good news, the general fuel levy and the Road Accident Fund (RAF) levy will remain unchanged for another year, continuing the freeze that was first introduced in 2022. This move is expected to provide roughly R4 billion in tax relief, preventing a further increase in fuel prices—though external factors like global oil prices and the exchange rate will still influence costs at the pump.

Sin Taxes – Alcohol and Tobacco Get More Expensive

Consumers who purchase alcohol and tobacco products will need to dig deeper into their pockets. The government has once again raised excise duties, with alcohol taxes increasing by 6.75% and tobacco taxes by 4.75%.

For context, this means:

• A 340ml can of beer will cost about 15 cents more.
• A bottle of wine will increase by 38 cents.
• A 750ml bottle of spirits, such as whisky or vodka, will rise by R5.97.
• Cigarette prices will increase further, with higher duties on cigars and pipe tobacco as well.

The government justifies these increases as a way to promote public health while boosting revenue, but for consumers, it simply means higher costs.

Social Grants – Modest Increases Amid Inflation

Millions of South Africans rely on social grants, which have been adjusted slightly upwards. However, these increases may not keep pace with inflation, meaning beneficiaries could still struggle to afford basic necessities.

Public Transport and Infrastructure – Will It Make a Difference?

The government has allocated R19.2 billion to improve train services through the Passenger Rail Agency of South Africa (PRASA) and an additional R11.8 billion for infrastructure projects. If managed effectively, these investments could improve transport affordability and accessibility.

How South Africans Can Stay Ahead

With rising costs across various sectors, consumers will need to take proactive steps to manage their finances and reduce financial strain. Here are some key strategies:

1. Adjust Your Budget: Expect price increases and plan your spending accordingly. Prioritise essentials and look for cost-cutting opportunities where possible.
2. Maximise Tax Savings: Take advantage of tax-free savings accounts, medical aid deductions, and retirement annuities to reduce taxable income and improve long-term financial stability.
3. Explore Alternative Transport Options: if PRASA’s upgrades improve rail services, public transport could become a more affordable alternative to private vehicles, helping to cut down on fuel and maintenance costs.
4. Reduce Discretionary Spending: With sin taxes increasing, cutting back on alcohol and tobacco not only improves health but also saves money.
5. Consider Debt Consolidation: Rising expenses may make it harder to manage multiple debt repayments. Consolidating debt into a single loan with a lower interest rate can simplify payments and reduce financial stress.
6. Invest in Skills and Career Growth: With economic uncertainty ahead, enhancing skills and qualifications can improve job security and open up better-paying opportunities.

How to get through the year ahead?

The 2025 budget introduces policies that will increase the financial burden on many South Africans, particularly through higher VAT and unchanged tax brackets. While some relief measures, such as the fuel levy freeze and infrastructure investment, may help in the long term, consumers will need to be strategic in managing their finances to navigate the challenges ahead.

Taking proactive steps now – such as budgeting wisely, seeking tax benefits, and considering debt consolidation – can help individuals and families stay financially resilient in an increasingly costly environment.