The financing side of the 2025 National Budget tabled by Finance Minister Enoch Godongwana on Wednesday proposing a 0.5% VAT increase and no changes for income tax brackets and medical aid tax credits is a big concern.

Douw Boshoff, a Professor in Real Estate at the University of Pretoria(UP) said the reported 0.5% increase in VAT per year over the next two years, results in an approximate R15.00bn in year 1, R31.85bn in year 2 and R33.95bn in year 3, totalling a R80.8bn reduction in disposable income.

He said that, in addition to this, no change is proposed for income tax brackets and medical aid tax credits, resulting in a bracket creep of approximately R28bn in year 1 and R14.5bn in year 2, or R42.5bn total.

“The total impact is R123.3bn reduction in disposable income. The impact for the property sector is from an affordability side in the residential market, with up to a 2% negative impact on property values due to this.

"On the commercial side, the negative impact on disposable income would reduce overall consumption expenditure on goods and services, and a resultant reduction in demand for space and rentals paid by tenants, with a further 0.3% negative impact on commercial property values,” Boshoff said.

Rhangani Mbhalati, executive chairman at Chapu Chartered Accountants, concurred that with the budget proposing a 0.5% increase in VAT, raising it from 15% to 15.5%, while less than the initially debated 2%, it may still affect property transactions by increasing associated costs, potentially reducing market activity.

“The National Treasury forecasts an average economic growth rate of 1.8% from 2025 to 2027. This modest growth could enhance investor confidence, positively influencing the property market.

"The budget (also) emphasises infrastructure development, which can stimulate the real estate sector by improving accessibility and increasing property values in enhanced areas,” Mbhalati said.

In response to an Independent Media Enquiry, Boshoff said the key points of the budget can be discussed in terms of the spending and the sources of funding. He added that the overall impact of the budget should first be considered in terms of the budget surplus/deficit and impact on overall government debt and servicing costs.

Boshoff said there is a view to have a budget neutral situation, although the net effect is a marginal increase, increasing debt servicing cost to 22% of gross tax revenues. He said this might have a marginal increase in government yields due to the perceived riskiness of government debt unless it is contained and reduced in the long term.

“The resultant effect is a marginal increase in cost of capital to investors, especially property owners holding these assets for long term income streams and investment purposes, and although marginal, the long term creep is worrying,” Boshoff said.

The academic said that in terms of the spending, this budget is skewed towards operational expense increases that would yield a very low multiplier effect.

He said that although increases in salaries and frontline staff expenditure can improve service delivery and result in increases in disposable income for government staff, it is funded from tax, which reduces private sector disposable income.

“The big concern is the question if the positive multiplier effect in the government sector is greater than the negative multiplier in the private sector.

"History has shown us that it is not, with a resultant net negative impact on economic activity, and overall disposable income, which in turn negatively impacts affordability in the property market, and rental space demand in the commercial real estate market.”

On a positive note, Boshoff said the movements on the Independent Transmission Programme are encouraging to improve private sector involvement in energy supply, which could improve service delivery, economic activity, and ultimately demand for property to conduct business.

He said it could also reduce the cost of energy services, which would result in positive impacts on net operating income and property values for property owners.

This is, however, only theoretical and the formal implementation is yet to reveal the impact to be quantifiable, he cautioned.

Benay Sager, chairperson of the National Debt Counsellors’ Association (NDCA), said the main feature of this budget is primarily the VAT increase to 15.5% for this financial year and 16% for the following financial year (2026/27).

The VAT increase seems like it comes with an extended range of zero-rated VAT items, meaning items you don’t pay VAT on. I think one needs to see what the real impact will be on expenditure and things like that.

It has an impact on the broader economy from the perspective that it’s more tax on consumers and it reduces the available expenditure.

"While it sounds very small, it does have a larger impact overall, so there will be less money to go around. On the other hand, we don’t yet know where the money that is needed to fund some of the increase in expenditure will come from, so we’ll need to see the details before we can comment further,” Sager said.

This organisation, which represents debt counsellors operating in South Africa, said the debt pressures are predominantly coming from the need to borrow and the need to borrow to pay for necessities.

It said when looking at the increase in prices of particular items over the last several years, for example, taking food, even though inflation is given as CPI, food has increased 1.5 times more than CPI over the last few years.

Similarly, it said something like the electricity increased at a rate that is 2.5 times more than inflation over the last few years.

Sager said these are significant inputs for South African consumers when looking at what people are spending money on. He said pretty much all income groups spend about 10 to 11% of their income on electricity, which is sizable.

Some of the lower income groups are spending upwards of 50% and maybe more on food, so when food costs are rising 1.3 times more than actual inflation, with VAT on top of that, it is going to impact massively, he said.

“I think similarly with electricity; it’s going up again in a month by 12%, and the VAT adds additional expenditure on top of that. It’s just going to leave less money in people’s pockets in terms of investing in the future and being able to put money aside for retirement.

"It’s probably also going to put pressure back on consumers to borrow more,” Sager said.

Overall, Boshoff said as alluded to in the budget speech, the long term positive impacts of the government spending must be weighed against the short term pains of additional tax, but in the same light, the negative impacts in the private sector through the economic multipliers must be weighed against the positive impacts in the government sector, and reviewed if there is a net positive impact.

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Financing issues in the 2025 National Budget raise concerns, says real estate expert