Finance Minister Enoch Godongwana’s announcement during the 2025 Budget speech around personal income tax brackets and the fact that they are not being adjusted for inflation will have severe consequences for many South Africans.

Jurgen Eckmann, a wealth manager at Consult by Momentum said because there were no overt personal income tax increases, this lack of inflationary adjustment means that South Africans will ultimately take home less money, especially if their annual increase pushes them into a new tax bracket.

This is the second consecutive year that government has failed to adjust these tax brackets for inflation.

“Had the Minister adjusted the brackets, consumers would still pay more in tax but it would be in line with their increase,” he explained.

So what does this mean in real terms?

Eckmann said that for example, if someone earns R30,875 per month before tax (R370,500 per year) they should receive a 7% inflationary annual increase from their employer and this will shift them into a new tax bracket.

“Without Treasury providing for this and adjusting the brackets, this means that the person, who now earns R33,078.75 per month before tax will now pay R83,419 in annual income tax, which is almost R10,000 more in tax than they would have paid the previous year (R73,726),” he explained.

"So while their net salary would have increased by 5.65%, but their tax bill would have jumped by 13.15%.

This is how government gets richer

This process in financial terms is known as “fiscal drag” and in 2025 government will generate R18 billion through fiscal drag.

It may seem that government was just delinquent in failing to adjust the tax brackets or the primary rebates for inflation but billions of rands will now flow into the state due to this drag.

Last year, National Treasury was able to draw in around R16 billion from South Africans through this method of fiscal drag. This means that with this year's tax proposal, personal income taxpayers are effectively paying R34 billion more in tax than they did in 2023.

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