How South Africa’s budget impacts your financial planning
The proposed government budget, tabled on 12 March 2025, holds significant implications for your financial decisions in this shifting economic landscape. The focus remains on delivering a budget that promotes economic growth and stability. As the budget progresses through discussions and amendments before parliamentary approval, it’s vital to consider its potential impact on your financial landscape.
Here is an overview of how the budget may impact your investment goals, savings strategies, and retirement.
Adjustments to value-added tax (VAT)
One of the most notable changes in the proposed budget is the planned increase in VAT from 15% to 15.5% on 1 May 2025, with a subsequent increase to 16% in April 2026. This indirect tax, which makes up nearly a quarter of government revenue, will likely lead to a 0.5% increase in the price of goods and services and slightly push up the inflation rate, which now sits at 3.2%. It is important to recognise that while essentials like brown bread and maize meal are VAT-exempt, the overall effect may reduce your purchasing power. As you strategise your investments and savings, consider how these changes might influence your spending and investment plans in 2025.
Fuel levy stability is good news
There is some relief on the cards if you’ve been trying to manage your transportation costs, with the government’s decision to keep the fuel levy unchanged and a drop in fuel prices this March. Fuel is a key expense for households and businesses alike, so this stability helps maintain disposable income levels and supports overall spending power. Looking ahead to April, a stronger rand and lower international oil prices may reduce petrol and diesel prices by nearly R1 per litre. It is welcome news, particularly if you travel frequently or manage a logistics-heavy business. For investors, lower fuel prices can ease inflationary pressures. How these impact your financial planning, from household budgeting to investment strategies, is something to think about.
GDP growth’s ripple effect
The National Treasury has upgraded its GDP growth forecast from 1.7% to 1.9% for 2025. While still modest, this marks an improvement from 0.6% in 2024 and signals economic resilience. If realised, this growth could:
- Boost job creation, increasing consumer spending and supporting retail, real estate, and financial markets.
- Encourage business expansion, leading to greater corporate investment and capital expenditure.
- Attract foreign investment, strengthening South Africa’s appeal in global markets.
Stay resilient with tax-efficient investments
While income tax brackets remain unchanged, beware of “bracket creep” – where salary increases push you into a different tax bracket, reducing your actual income. Without adjustments for inflation, you could pay more tax even if your purchasing power remains the same. To mitigate this, you should consider tax-efficient investment options, like retirement annuities or tax-free savings accounts, which can help preserve wealth while keeping you tax-compliant.
Government spending meets opportunity
Government spending is set to increase by 5.6% and will primarily be allocated to public wages, basic education, social grants and infrastructure development. While this could boost retail trade and job creation, rising debt obligations may lead to more tax adjustments in the future. However, infrastructure investments in energy, transport, and digital connectivity can present growth opportunities in construction, logistics, and technology. If your investment portfolio includes these sectors, now may be the time to strategically position yourself for potential gains.
It’s time to reassess your portfolio
There is some promising news at this early stage of the year that could impact your financial journey. In January, the South African Reserve Bank decreased the interest rate from 7.75% to 7.5%, which presented a unique opportunity to better manage your debts and investments. On the 20th of March, the governor, Lesetja Kganyago, announced no change in the interest rate resulting in the base lending rate remaining unchanged at 11%. If you have outstanding debts, you will continue to enjoy lower monthly payments. This could improve your cash flow, allowing you to reduce debt faster or redirect funds toward savings and investments. If you’re saving and investing, you might need to adjust your portfolio as lower rates impact fixed-income returns.
The 2025 budget brings a mix of challenges and opportunities, making it a key moment to reassess your financial strategy. While potential VAT adjustments could affect consumer prices, steady fuel costs may offer some relief for transportation expenses. As you map out your savings, investment, travel, and retirement plans, staying ahead of these changes can help you maximise your financial position.
Missed the budget speech, click on the below for a summarised budget speech review.