| Budget 2025 v 2 The full budget speech, the summary, the (invaluable) tax booklet is available HERE Well, finally the budget went ahead. It is interesting to watch the potential parallels between what is happening in the US and here. Like the States, our government separately needs to cut back on spending, not just expect more and more from the tax-payer – or to take on expensive debt. Frankly, if we continue to ignore this problem, Cyril is going to have to get out his begging bowl and go to the IMF – and THEY will impose the restrictions that our government won’t as part of the conditions for the loan. I think we all agree that it is going to be uncomfortable, especially for govt departments, but at least we still have control over it. Don’t assume that this budget is going to get passed by parliament, and the EFF and DA have both said that they will oppose it. April is going to be interesting. Operation Vulindela was referred to often in the speech by the minister – whether this is just lip-service remains to be seen. Summary Tax policy proposals are designed to raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27. The tables below show clearly how the economy has deteriorated since the brief post-pandemic boost. Even with the lower inflation rate environment, GDP is anemic at best. The government proposes to increase the value-added tax (VAT) rate by 0.5 percentage points in 2025/26 and by 0.5 percentage points in 2026/27. The table below shows the effect of the changes in the budget will have on the revenue. By not moving the tax brackets to adjust for inflation, they will collect an additional R18bn – more than the R11.5bn from the increase in VAT. Personal income tax brackets and rebates are not adjusted for inflation in 2025/26. (This is obviously taxation by stealth, an effective 5% increase in tax). There is also no increase in medical tax credit (this is likely to be withdrawn completely in time) To provide relief to lower-income households, the government proposes additional VAT zero rating of essential food items and no changes to the fuel levy. Government spending Consolidated government spending increases at an annual average of 5.6 per cent, from R2.4 trillion in 2024/25 to R2.83 trillion in 2027/28. Note that inflation in December was 3% – so this is 2.6% above inflation. You can see from the table below that not one increase in government expenditure is below inflation. * Over the medium term, economic development is the fastest-growing function at an annual average rate of 8.1 per cent, driven by higher allocations to infrastructure projects. * Spending is highly “redistributive”, with the social wage making up 61 per cent of total consolidated non-interest spending over the next three years. * The 2025 Budget funds spending pressures of R232.6 billion over the medium-term expenditure framework (MTEF) period, including provisional allocations for frontline service delivery departments amounting to R70.7 billion. * Additional funding of R46.7 billion is made available for infrastructure investments and R23.4 billion is made available for the 2025 public-service wage agreement, which provides greater certainty for budget planning for the next three years. Wage Increase, 5.5% for 2025/26, future increases (2026/27 & 2027/28) linked to the Consumer Price Index (CPI). Other allowance adjustments are highlighted. Not great for bringing down govt spending. Areas of concern As always, the sheer amount of our taxes being used for social grants is unsustainable, but can only be truly addressed by significantly increased economic investment and growth. Debt Burden If you look at the debt repayments we taxpayers make every year (Government expenditure above), you’ll see it is an eye-watering R478bn – the second highest item in the budget. The graphs above show the (typical) ‘we’re going to do better’ graph – which never happens. Unless the government does something about this, and not digging us further into debt every year, we are going to end uo at the door of the IMF, and that is not going to be pretty. Important changes * Increase in VAT by 0,5% on 1/5/2025 VAT, as we know, is a tax on consumption. A rate increase affects all households through price increases, but most VAT is paid by higher-income households, which consume more. Over 75 per cent of VAT revenue is derived from households in the top four expenditure deciles, which roughly corresponds to households that spend R118 000 or more per year * No increase to tax brackets The above graph is very interesting – it shows you very clearly the problem if the government kills the geese that lay the golden eggs – higher net worth individuals who probably have more flexibility and mobility (aka emigration) as was seen in the UK in the 70s. Almost half the tax revenue comes from individuals who earn more than R1m pa. * No increase in fuel levy * No increase in tax rebates to adjust for inflation * No increase in interest rate or CGT annual allowance (for many years in succession) * Increase in infrastructure spending – to be funded by bonds Tax brackets and rebates There was no change in the tax brackets – which means that effectively tax will be increased in real terms. Yes, the same as last year. No increased rebates either. Sin Taxes and Fuel Levy No increase in fuel levy. Above inflation increase in sin taxes on tobacco and liquor. Rebates and allowances No change – so effectively an inflation related increase. These are all summarised in the 2025/26 tax guide, downloadable at the Treasury website (above) or ask me for a copy. Retirement Funds, Lumpsums, Savings pockets etc. No changes. Apart from the two-pot system that came into effect last year (a pre-retirement change), there have been no changes to the tax deductions, limits or lumpsum rules on retirement funding for many years. Other Some bracket relief in transfer duties on properties Author: Dawn Ridler Articles and Blogs: Apportioning blame for your financial state NEW Tempering fear and greed NEW New Year’s resolutions over? Try a Wealth Bibgo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Keeping your legacy shining bright Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |