The National Treasury has succeeded in achieving its broad fiscal consolidation and debt stabilisation plans while still providing individual taxpayers with long-delayed tax relief amounting to R13.7bn in lost revenue to the fiscus.
Personal income tax brackets as well as medical tax credits will be adjusted by 3.4% in line with the expected inflation rate for 2026, and rebates and tax thresholds have also been raised.
It is the first time in two years that individual taxpayers have been provided with relief from bracket creep — the effect of inflation on their salaries, which pushes them into a higher tax bracket. The move will further boost confidence in the economy, already recently strengthened by South Africa’s sovereign credit rating upgrade, lower inflation and heightened investor interest.
The threatened R20bn in tax increases has been averted due to a total revenue overrun of R28.3bn for 2025/26 compared with the 2025 budget. A large chunk of this – R22.1bn – has been allocated to non-interest expenditure, particularly on infrastructure for Transnet, the Durban container terminal, the Passenger Rail Agency of South Africa (Prasa) and Sentech.
The budget tabled by finance minister Enoch Godongwana in parliament on Wednesday demonstrated improvements over three years in projected fiscal metrics such as gross loan debt as a percentage of GDP, the gradual decline in the budget deficit and the promised achievement of a primary budget surplus — when revenue exceeds non-interest expenditure — of 0.9% of GDP in 2025/26 and 2.3% in 2028/29.
As the minister said during a media briefing before his budget speech in the National Assembly, “we have turned the corner” relative to where the fiscus was after the Covid-19 pandemic. Director-general Duncan Pieterse said in his foreword to the Budget Review the 2026 budget “marks an important turning point for South Africa. Determined action has put the country’s public finances on a sustainable footing, enhancing fiscal credibility”.
While gross loan debt stabilises at 78.9% of GDP in 2025/26 – for the first time since 2008 — this is higher than the 77.9% forecast in the medium-term budget policy statement (MTBPS), which Pieterse explained in terms of changes to the nominal GDP denominator and higher debt this year as part of Treasury’s long-term debt management strategy. However, it declines faster than MTBPS forecasts to 77.3% (77.7%) in 2026/27; 77% (77.4%) in 2027/28; and 76.5% (77%) in 2028/29.
Pieterse insisted that “there has been no missing of our targets”, namely that debt stabilisation peaks in 2025/26 without a specific level being reached and that a primary surplus has been achieved.
Over the next three years, principal debt and interest payments are expected to be R21bn lower than the MTBPS projections, marking for the first time in a decade the tabling of a fiscal framework in which debt service costs grow more slowly than overall expenditure. Projected debt service costs are revised down by R10.6bn over the medium term due to improved bond yields, a stronger rand, and lower inflation and interest rates. The cost of servicing debt over the next three years will fall from 21.3% of revenue in 2025/26 to 20.2% in 2028/29.
A consolidated budget deficit of 4.5% (4.7% in the MTBPS) is expected for 2025/26 but is projected to be higher than MTBPS forecasts for the next three years at 4% (3.8%) in 2026/27, 3.5% (3.3%) in 2027/28 and 3.1% (2.9%). Head of Treasury budget office Edgar Sishi said this was due to a deterioration in the balances of social security funds, provinces and public entities. The main budget balance declines progressively to 2.9% in 2028/29.
Higher net VAT, corporate income tax and dividend tax collections have contributed to the R21.3bn increase in gross tax revenue for 2025/26 compared with the 2025 budget. The withdrawal of the proposed R20bn tax increases results in a R57.2bn downward revision in gross tax revenue over the medium term.
The Treasury forecasts economic growth of 1.6% in 2026, slightly higher than the 1.5% forecast in the MTBPS, and it is projected to grow by 1.8% in 2027 and 2% in 2028, giving an average of 1.8% over the next three years. Growth of 1.4% is expected for 2025. Consumer price inflation is forecast to be lower at 3.3% in 2027 and 3.2% in 2028.
But the Treasury warns that risks to global growth are tilted to the downside due to geopolitical tensions, and to domestic growth due to persistent logistics bottlenecks and weak public infrastructure among other things.
Consolidated government expenditure is projected to increase at an average annual rate of 3.9% from R2.58-trillion in 2025/26 to R2.89-trillion in 2028/29 with capital payments showing the fastest growth of 9.7% over the medium term while the wage bill is forecast to grow by 4.4%. Spending on education constitutes the largest share of spending at 23.2%. Consolidated non-interest expenditure increases at an annual average of 0.6% in real terms.
Infrastructure spending over the next three years will total R1.07-trillion, funded by the fiscus, own revenue and private investors.
Main budget non-interest expenditure has been revised down by R19.4bn in 2026/27 and 2027/28 compared with the 2025 budget, mainly due to adjustments to baseline allocations in line with lower expected inflation.
The extension of the social relief of distress grant at an unchanged payment of R370 for another year will cost R36.4bn, with Godongwana saying details of its replacement will be revealed in the next MTBPS. Grants have increased slightly above the 3.4% expected inflation rate.
Through the government’s targeted and responsible savings programme, which aims to cut wasteful expenditure and ineffective programmes, savings of R12bn have been identified and reallocated. This mainly relates to terminating the public sector transport grant but includes getting rid of ghost workers and fraudulent social grant beneficiaries.
The Treasury says risks to the fiscal outlook include weaker-than-expected global and domestic economic growth, commodity price volatility, the financial health of state-owned enterprises, and higher borrowing costs due to geopolitical risks, adverse global monetary conditions or changes in investor sentiment.
It has adopted a tough approach to provincial and municipal dysfunction, moving from oversight to structural intervention.
The Treasury has provided for a contingency reserve of R32.6bn over the next three years to manage major unanticipated risks, such as natural disasters.
The public sector borrowing requirement is projected at R296.6bn in 2026/27, R363.2bn in 2027/28 and R332.8bn in 2028/29. Deputy finance minister David Masondo noted that lower bond issuance over the next three years would result in savings of R469m over the lifetime of the bonds.
Excise duties on alcoholic beverages and tobacco products (including vaping products) in 2026/27 will rise by 3.4%. The general fuel levy will increase from April 1 by less than inflation to R4,10/l for petrol from R4,01/l and to R3,93 for diesel from R3,85, resulting in a loss of revenue to the state of R1bn. But this will be recouped by the additional R1bn derived from the above-inflation increase in the carbon fuel levy, which will increase to 19c/l (14c) for petrol and 23c (17c) for diesel from April 1. The Road Accident Fund levy will be increased by 7c/l to R2.25 from April 1 in line with the expected inflation rate.
On the proposed fiscal anchor, the Treasury says it will introduce legislation prescribing a principle-based obligation to anchor fiscal sustainability in law. This will require each new government to table a plan to ensure that the fiscal position is sustainable throughout its term of office and that an appropriate fiscal metric is selected to measure compliance. The proposals will be contained in a consultation paper, with details being announced in the 2026 MTBPS.
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