Budget 3.0 brings VAT relief, sin tax burns, and an unexpected fuel levy hike
CAPE TOWN - Finance Minister Enoch Godongwana put on a brave face as he presented his third budget proposal for the 2025/26 financial year.
His first budget speech was delayed due to unhappiness among GNU partners over the proposed VAT hike.
The second resulted in court action.
On Wednesday, Godongwana set the tone by clarifying that VAT would remain at 15%. This left the minister with a big shortfall to make up for. He chose to fill it with fuel levy.
Next month, petrol goes up by 16 cents a litre and diesel by 15 cents. This is the first fuel levy increase in three years. Godongwana said this alone would not close the fiscal gap over the medium term.
The 2026 budget will therefore need to propose new tax measures aimed at raising R20 billion.
Alcohol drinkers and smokers must also brace themselves for a hefty sin tax hike. Cigarettes will go up by more than a rand for a pack of 20, while cigars increase by around R8.50 per 23 grams. Spirits rise by almost R6 for a 750ml bottle.
The food basket also takes a knock. Godongwana said the zero-rated basket – which was expanded to include edible offal, specific meat cuts and canned vegetables – would also shrink.
Godongwana also committed to more transparent public spending. He said government must ensure that every rand collected is spent on its intended purpose.
'We found potential savings of R37.5 billion over time, through improved oversight and operational changes…' he explained.
'Going forward, underperforming programmes will be closed as the 2026 Medium-Term Expenditure Framework budget process undergoes redesign," Godongwana said.
The minister also said authorities were making progress in the war against corruption.
In the past five years, the Asset Forfeiture Unit (AFU) recovered over R5 billion in criminal assets. The AFU also obtained freezing orders for R14.2 billion worth of assets related to state capture cases.
Godongwana did admit that there were long-standing spending pressures, some of which cannot be funded within the current purse.
Among them are the Passenger Rail Agency of South Africa stock fleet renewal programme, as well as HIV/Aids programmes that were previously funded by the US government.
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