BUDGET 3.0: GOVT SCRAPS VAT HIKE, INCREASES SOCIAL GRANTS & SIN TAXES

CAPE TOWN – 22 May 2025:
Finance Minister Enoch Godongwana presented South Africa’s revised national budget—dubbed Budget 3.0—before Parliament on Wednesday, 21 May 2025, marking a major turning point after two failed attempts to pass the previous versions.

The revised budget comes after intense political pressure and backlash over the proposed VAT increase. Budget 3.0 now reflects a compromise aimed at fiscal stability, social protection, and stimulating economic recovery.

KEY HIGHLIGHTS:

VAT HIKE SCRAPPED

The controversial proposal to increase VAT from 15% to 17% over two years has been removed.

Opposition parties and civil society organisations opposed the VAT hike due to its likely impact on poor and working-class households.

Treasury says the removal of the VAT hike creates a R75 billion revenue shortfall over the medium term.

SOCIAL GRANTS INCREASED

To support South Africa’s most vulnerable:

Old Age, Disability, and War Veterans Grants increased by R130

Child Support Grant increased by R30

SRD Grant has been extended and maintained at R370

ECONOMIC OUTLOOK REVISED

GDP growth forecast for 2025 reduced from 1.9% to 1.4%

Budget deficit expected to widen to 4.8% of GDP

Gross debt now projected to peak at 77.4% of GDP

FUEL, TOBACCO & ALCOHOL DUTIES RISE

To compensate for lost VAT revenue:

Fuel Levy to increase by 16 cents/litre (petrol) and 15 cents/litre (diesel) starting June 2025.

Excise duties on:

Tobacco: +R1.04 per pack

Beer: +R0.16 per 350ml

Spirits: +R5.971 per bottle

INFRASTRUCTURE SPENDING BOOST

Over R1 trillion in medium-term infrastructure investment for roads, water, energy, and housing.

Seen as key to unlocking jobs and economic growth.

POLITICAL REACTIONS:

ANC & GNU Partners: Praised the balanced approach to economic recovery.

EFF: Slammed the budget as “austerity in disguise.”

DA: Welcomed the scrapping of the VAT increase.

IFP: Commended focus on frontline service delivery.

ActionSA: Raised concerns about slow reforms.

CONCLUSION

Budget 3.0 represents a crucial compromise balancing political pressure, social demands, and economic constraints. It reflects the realities of governing under the Government of Nationa Unity (GNU) while maintaining service delivery and trying to boost the economy.

Download the full Budget 2025 PDF:
treasury.gov.za