2025 Budget: How It Impacts Your Financial Plan

The 2025 Budget brings significant financial challenges, with rising costs and additional taxes adding pressure to households. While the government aims to stabilise debt and manage spending, the measures introduced may strain finances even further.

Key Changes Affecting Your Budget

VAT Increase:

A gradual VAT hike, rising by 0.5% in May 2025 and another 0.5% in April 2026, will bring the rate to 16% by 2026/27. This will increase the cost of goods and services, impacting daily expenses and reducing disposable income for many households.

No Personal Income Tax Adjustments:

With no changes to tax brackets, inflation-driven salary increases could push many into higher tax categories, leading to higher tax payments in real terms.  This form of “bracket creep” means many individuals will effectively be paying more tax without any actual increase in their purchasing power.

Reduced Social Grant Increases:

Initial proposals for above-inflation increases have been scaled back, limiting relief for lower-income households.  While some essential goods remain VAT zero-rated, this may not be enough to offset the rising costs of living.

Small Business Challenges:

The VAT registration threshold remains unchanged at R1 million, making it harder for small businesses to manage rising costs without passing them on to consumers.  This could lead to increased pricing, reduced competitiveness, and financial strain on entrepreneurs.

Impact on Investments:

Higher inflation could erode investment returns, and potential interest rate hikes may affect market stability and company profitability.  Investors may need to reconsider their asset allocations, focusing on inflation-resistant strategies.

Increased Tax Burden on Middle-Class Earners:

With no adjustments to tax rebates or medical tax credits, many middle-income earners will find their overall tax burden rising. Additionally, so-called “sin taxes” on alcohol and tobacco have been increased, further straining household budgets.

Limited Job Growth Measures:

The budget does not introduce new policies aimed at stimulating private-sector job growth, which means employment opportunities may remain limited. This could have a long-term impact on income stability for many South Africans.

Navigating These Financial Shifts

Given these changes, now is the time to reassess your financial plan. Consider:

• Adjusting your budget to accommodate higher costs.
• Exploring tax-efficient investment strategies.
• Reviewing business pricing and tax planning.
• Strengthening long-term financial resilience.

Morebo is here to help you refine your financial strategy to navigate these uncertainties.

Contact us today for expert guidance tailored to your needs.