While inflation for December last year showed a month-on-month increase of 0.1 percentage points, that figure for 2024 was a sharp decrease at 4.4% when compared to the 6% print seen in the previous year. Inflation and higher interest rates could be on the cards if US policies weaken the rand. File Picture: Ayanda Ndamane / Independent Media
Image: Ayanda Ndamane, independent media
The 2025 Budget Speech takes place amid geopolitical uncertainty that could have a severe effect on South Africa’s economy.
With US President Donald Trump having cut funding to South Africa over its foreign policy and misunderstandings over its land reform legislation, it is widely anticipated that the African Growth and Opportunity Act (Agoa) free trade benefits will fall away later this year, which would have a profound effect on the local economy.
According to Riaan Grobler, head of advisory services at Everest Wealth, the loss of Agoa would see the country lose billions of dollars worth of exports and could curtail investment and expansion plans by US companies.
This would be detrimental to the rand and economic growth.
“There are also fears about a trade war that the US could unleash with import tariffs. The Reserve Bank is concerned that this will cause the rand to tumble and inflation and interest rates to rise again,” Grobler added.
“In the meantime, South Africa’s economic growth is sluggish amid rising government debt. The government’s ambitious plans to stabilise government debt are also not expected to materialise.”
Furthermore, tax revenue collection is expected to fall short by around R10 billion. As a result, various tax proposals are currently being considered, including a wealth tax and the removal of medical tax credits, while an increase in Value Added Tax (VAT) has also been the subject of speculation among economists.
Currently, just over 1.6 million taxpayers in South Africa pay 76% of all personal income tax.
“The tax burden is only getting heavier on a smaller number of individuals while the economy is not growing and many taxpayers are leaving the country. The taxpayer base is becoming increasingly disillusioned as they are not getting value for their hard-earned tax money. Instead of finding new ways to tax South Africans more heavily, there should be tax relief to stimulate economic growth," Grobler added.
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