Starting 1 May 2025, the list of Vat zero-rated food items will be expanded to support vulnerable households.

Zero-rated foods now include edible offal from sheep, poultry, goats, swine, and bovine animals; heads, feet, bones, tongues; dairy liquid blend; and tinned or canned vegetables.

Treasury used equity-gain ratio analysis to decide which foods should be Vat zero-rated. They assessed revenue loss and the impact on lower-income households based on spending patterns.

Items with a higher equity-gain ratio showed that lower-income households spend more on these items relative to their total expenditure compared to high-income households.

Therefore, zero-rating these items benefits lower-income households more, provided that benefits are passed down to consumers.

 

Budget Highlights

 

1. VAT Increase

• VAT rate will increase by 0.5 percentage points in 2025/26 and another 0.5 percentage points in 2026/27, reaching 16% in 2026/27. ​

 

2. Food Costs

• Expansion of VAT zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry, and other animals. ​

 

3. Social Grants

• Old age and disability grants will increase by R130 to R2,315 in April. ​
• Child Support Grant will increase by R30 to R560 per month. ​
• Foster care grant will increase by R70.
• COVID-19 Social Relief of Distress extended by a year to March 2026. ​

 

4. Transport Costs

• No increase in the fuel levy for another year, saving consumers around R4 billion. ​
• Additional R19.2 billion allocated for PRASA to upgrade signaling, enabling trains every 10 minutes in certain areas. ​

 

5. Revenue and Tax Proposals

• No inflationary adjustments to personal income tax brackets, rebates, and medical tax credits. ​
• Measures to raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27. ​

 

6. Health and Education

• R19.1 billion added to keep approximately 11,000 teachers in classrooms. ​
• R28.9 billion added to the health budget to retain healthcare workers and employ post-community service doctors. ​

 

 

Changes Impacting Business and Economy

 

1. Infrastructure Investment

Over R1 trillion has been allocated for public infrastructure spending over the next three years. Key sectors include R402 billion for transport and logistics, R219.2 billion for energy infrastructure, and R156.3 billion for water and sanitation.

 

2. Public-Private Partnerships (PPPs)

New regulations for PPPs will be effective from 1 June 2025 to reduce procedural complexity and strengthen fiscal risk governance. Sector-specific PPP units will drive private sector participation.

 

3. Macroeconomic Stability

There is a commitment to a balanced fiscal strategy with a primary budget surplus projected to grow to 0.9% of GDP in 2025/26. Government debt is stabilising at 76.2% of GDP in 2025/26.

 

4. Structural Reforms

Operation Vulindlela (OV) focuses on energy, logistics, digital communication, water supply, and visa regime reforms. Phase 2 of OV aims to strengthen local government, improve basic services, harness digital infrastructure, and create efficient cities.

 

5. Resourcing SARS

SARS has been allocated R3.5 billion in the current financial year and an additional R4 billion over the medium term to improve tax compliance and administrative efficiency.

 

6. Spending Priorities

R232.6 billion in additional funding has been allocated for key programmes over the medium term, including infrastructure investments, social protection, and public-service wage agreements.

 

7. Peace and Security

R9.4 billion has been allocated to fund defense force and correctional services. Additionally, R5 billion has been allocated to support South Africa’s participation in SADC missions and peacekeeping activities.

 

8. Building State Capability

The focus will be on effective and efficient service delivery, budget reforms, and reducing wasteful expenditure.

 

9. Disaster Resilience

R1.7 billion has been allocated for future disasters over the medium term, with R4 billion provisionally allocated for recovery efforts.

 

10. Strengthening Local Government

There will be a review of the local government fiscal framework and reforms to revenue-generating services.

 

The latest budget aims to balance cost savings with development goals by focusing on economic stability, necessary reforms, infrastructure projects, and efficient public services.

The proposed tax increases and spending plans are designed to meet urgent service needs while promoting growth and stability.

The improvements proposed in the budget are crucial for South Africa not only to modernise its deteriorating infrastructure, but also to bolster foreign trade and investment, and create mutually beneficial bilateral trade opportunities. Ultimately, these efforts will increase ease of trade, benefitting South African consumers and the broader economy.

 

Source: www.treasury.gov.za