How the National Budget is impacting South African consumers

The National Budget and an increase in the cost of living will hit consumers, who should reassess their budgets now and start saving as much as possible before more taxes come in next year.

On Wednesday, both the inflation numbers and the National Budget came out. The Consumer Price Index showed that inflation climbed from 2.7% in March to 2.8% in April, while Finance Minister Enoch Godongwana indirectly reduced people’s take-home pay and added more subtle taxes.

 Godongwana had a R75 billion revenue hole, which he needed to fill somehow after two proposals to increase VAT were swept off the table.

Harry Scherzer, actuary and CEO of Future Forex, said the National Budget is a “mixed bag for South African consumers. On the positive side, the decision to hold VAT steady at 15% avoids placing additional strain on household budgets. However, the increase in the fuel levy will hit consumers hard.”

Scherzer explained that, in a low gross domestic product environment, higher fuel taxes will have a direct impact on food, transport, and other costs. “On top of that, above-inflation hikes in sin taxes will further dent disposable income, especially for lower-income earners”.

Ricardo Teixeira, COO at BDO Wealth Advisers, said National Treasury estimates that by keeping the tax brackets unchanged, it will raise an additional R15.5bn in personal income tax in the current tax year. He stated that “anyone earning R96,000 or more will inevitably have less take-home pay each month” due to unchanged income tax thresholds and reduced medical tax credits.

Teixeira noted that a 4% increase in the fuel levy and 6.75% on “sin” taxes will impact monthly budgets. From the fourth of June this year, the general fuel levy will increase by 16 cents per litre for petrol, and by 15 cents per litre for diesel.

 The increase in fuel costs may negate any potential savings in monthly expenses of a potential decrease in prices at the pump. The Central Energy Fund’s latest figures show that 93 octane fuel should go down by 22c, with diesel set to decline 50c, although these numbers could change depending on exchange rates and the price of oil, both currently favourable.

 Nokukhanya Madilonga, associate director of Employees Tax and Global Mobility Services at SNG Grant Thornton, said the announcement that the basket of tax-free food would not include more items is “not good for the consumers, especially the low earners”.

 Teixeira advised consumers that “staying mindful of your spending is a prudent strategy for every South African to adopt, helping to prevent taxes from eroding your wealth”.

 Savers are likely to breach the tax-free interest threshold more easily, and Teixeira said that “structuring your savings using tax-free savings accounts, endowment policies, or retirement annuities is a good option to keep your savings tax-efficient”.

 Madilonga said: “All is not lost as the taxpayers will still be able to reduce their taxable income using some of the incentives available”. She cited contributions to retirement funds and tax-free savings accounts as mechanisms to help with money issues.

 Teixeira also advocated for extra retirement fund contributions: “Contributions are tax-deductible, lowering your taxable income now while securing your future. You can contribute up to 27.5% of your taxable income or R350,000, whichever is lower.”

 Regarding tax-free savings accounts, “let the magic of compounding maximise this amazing tax benefit for you,” said Teixeira.

 Boipelo Ndimande, Consult by Momentum’s CFO, said the importance of having a well-diversified, long-term financial plan cannot be overstated. “Investors should avoid knee-jerk decisions, she said, advocating that consumers work with a qualified financial professional to “weather these headwinds”.

Now, more than ever, understanding how macroeconomic shifts affect day-to-day financial decisions is crucial, said Scherzer.

 On property transfers, Teixeira calculated an average saving of around R3,500 per every R1 million of the value of your property purchased.

 Yet, Citadel portfolio manager, Mike van der Westhuizen, said the National Budget left out several items that could pose fiscal risks in the near future, noting that there is “no mention of National Health Insurance, likely due to affordability concerns”.

Van der Westhuizen added: “These omissions represent a significant risk if any of them materialise later this year without a matching revenue plan.”

 For 2026, when the government needs to find extra money seriously, Teixeira said, “without a reduction in government spending, this shortfall is likely to be borne by the consumer again in the form of additional tax collections”.

 On avenue will be closing in on tax defaulters. Teixeira noted that the South African Revenue Service (Sars) is receiving more funding, with Godongwana stating the government will provide an extra R4 bn over three years and expects to collect “R20bn to R50bn in additional revenue per year.”

Investec chief economist Annabel Bishop said that the potential income is not included in the revenue estimates. In the 2024/25 fiscal year, Sars collected R95bn in debt owed by taxpayers, she added.

“Unless growth improves and spending pressures are permanently resolved, the risks will only grow,” Van der Westhuizen said. “It’s a fine balancing act, and right now, the balance remains precarious.”

 “Budgeting matters for everyone – and if South Africa’s national budget tells us anything, it’s that getting it right isn’t always easy! The year ahead looks challenging, with higher taxes likely to affect both your income and everyday spending,” said Teixeira.

PERSONAL FINANCE