South Africa has reached an important turning point in the management of public finances.

South Africa reached turning point – Budget Speech 2026

The finance minister, Enoch Godongwana, declared this during the 2026 Budget speech in parliament. In order to address the crisis in public finances, government decided to turn it into a catalyst for change.”We committed to a clear reform agenda and a disciplined fiscal strategy built on three principles: stabilise debt, invest in infrastructure and spend better,” he said.

According to the minister, the commitment has delivered tangible results. “For the first time in 17 years, debt will stabilise and it will continue to fall in the coming years,” the minister pointed out. He also highlighted that the budget deficit has narrowed significantly, and debt-service costs are also falling. Godongwana emphasised that the world has taken notice as evidenced by South Africa’s removal from the FATF grey list; securing the first credit rating upgrade in 16 years; and the easing of borrowing costs, creating space for growth and development.

“The lesson is a simple but powerful one: steady structural reform and responsible public finances are the bedrock of a prosperous and more inclusive South Africa,” he said.

ECONOMIC OUTLOOK

The global economy is projected to grow by 3.3 per cent in 2026, which is broadly in line with last year’s outcome. In this context, the Finance Minister pointed out that advanced economies are expected to grow moderately, while, in contrast, emerging markets will continue to anchor global momentum. India and Sub-Saharan Africa are forecast to grow more strongly, supported by resilient domestic demand. The domestic economy is expected to grow by 1.6 per cent in 2026, up from 1.4 per cent in 2025.

Real GDP growth is forecast to reach 2 per cent by 2028, supported by continued momentum on structural reforms, improving confidence, lower interest rates and higher investment. Inflation is expected to increase from 3.2 percent in 2025 to 3.4 percent in 2026.

A lower inflation target and improved management of the public finances have helped to boost investor confidence and reduce borrowing costs. National treasury holds the view that “removing obstacles to reform and speeding up the pace of critical change in electricity, transport and water would unlock higher rates of investment, growth and job creation”.

FISCAL POLICY

The consolidated budget deficit has narrowed to 4.5 per cent of GDP for 2025/26, an improvement from the 4.8 per cent estimated in the 2025 Budget. The deficit falls to 4 per cent in 2026/27 and 3.1 per cent the year after. Gross debt stabilises as a share of GDP in 2025/26, at 78.9 per cent. In 2026/27 it falls further, to 77.3 per cent of GDP and declines to 76.5 per cent by 2028/29. The main budget primary surplus for 2025/26 reaches 0.9 per cent of GDP.

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In the next financial year, it expands to 1.6 per cent, and then to 1.9 per cent in 2027/28.

By 2028/29, the government projects that the deficit will decline to 2.3 per cent. In response, it shifts its fiscal policy focus toward reducing debt. At the same time, it expects revenue collections for 2025/26 to exceed the 2025 Budget estimate by R28.8 billion. However, it also increases non-interest expenditure by R22.1 billion.

REVENUE TRENDS AND TAX PROPOSALS

Gross tax revenue for 2025/26 is revised upwards by R21.3 billion compared with the 2025 Budget. Higher-than-expected net VAT, corporate income tax and dividends tax collections improved the in-year outlook. The tax-to-GDP ratio increases to 25.9 per cent. Godongwana announced that the R20 billion tax increase pencilled in for the 2026 Budget is withdrawn.

“The improving fiscal position allows us enough room to withdraw the proposed tax increases, without putting fiscal sustainability or economic activity at risk,” said the minister.

Tax Proposals

The government will fully adjust personal income tax brackets and medical tax credits for inflation after two years without inflationary relief. It will also adjust tax thresholds and limits to account for inflation, support small businesses, and encourage savings.

To further encourage South Africans to save, the National Treasury proposes increasing the tax-free annual investment limit from R36 000 to R46 000 per year and raising the retirement fund deduction limit from R350 000 to R430 000, allowing individuals to invest more each year on a tax-free basis.

Godongwana announced that increases to certain taxes are unavoidable. For 2026/27, excise duties on tobacco will increase in line with inflation. This includes excise duty on electronic nicotine and non-nicotine delivery systems. The tax on a 20-pack of cigarettes rises from R22.81 to R23.58; pipe tobacco rises by 28 cents per 25 grams, and cigarette tobacco by 87 cents per 50 grams; and cigars rise by R4.56 per 23 grams.

The excise on alcoholic beverages also rises by inflation:

• a 340 millilitre can of beer or cider increases by 8 cents;
• A 750 millilitre bottle of wine goes up by 15 cents; and
• A 750 millilitre bottle of spirits will increase by R3.20.

The total increase for fuel levies will also be in line with inflation:

• general fuel levy will go up by 9 cents per litre for petrol and 8 cents per litre for diesel;
• carbon fuel levy will go up by 5 cents per litre for petrol and 6 cents for diesel; and
• Road Accident Fund levy will increase by 7 cents per litre.

CONSOLIDATED SPENDING PLANS

Consolidated government expenditure is projected to increase from R2.58 trillion in 2025/26 to R2.89 trillion in 2028/29. Government will spend R2.67 trillion in 2026/27. The spending includes a proposed R5 billion in the contingency reserve to cater to disasters declared since the 2025 MTBPS. The finance minister declared that government spending remains highly redistributive with 60.2 per cent allocated to the social wage in 2026/27.

Basic Education

Basic education, health and social protection constitute 70.3 per cent of the social wage in 2026/27, providing support to 13.6 million school children, healthcare services to 84 per cent of the population and social grants to 26.5 million beneficiaries. Spending on education constitutes the largest share of expenditure, at 23.2 per cent over the medium term. Basic education receives R22.7 billion for carry-through costs announced in May 2025. Early childhood development receives the majority of these funds.

Other

The government allocates R26 billion to provinces to strengthen the HIV/AIDS programme, including the prevention of mother-to-child transmission and the provision of antiretrovirals. It also allocates R21.3 billion to the health sector over the medium term to compensate and employ doctors, and to address shortfalls in goods and services expenditure. Capital payments is the fastest-growing expenditure item by economic classification, increasing by 9.7 per cent over the medium term. The minister announced that targeted and responsible savings of R12 billion have been identified and reallocated.

For 2026/27, social grants are allocated R292.8 billion, enabling the following increases:

• old age grant, disability grant and care dependency grant rise by R80 in April 2026, to R2 400;
• war veterans grant also increases by R80 to R2 420;
• foster care grant goes up to R1 290 in April, a R40 increase and to R1 300 in October, a R10 increase; and the
• child support grant and grant-in-aid grant increase by R20 to R580.

The social relief of distress grant continues in its current form over the year ahead.

To support efforts to intensify law and order, spending on peace and security increases from R268.2 billion in 2025/26 to R291.2 billion in 2028/29. Over the medium term, the government adds R2.7 billion to defence to improve operations. Specifically, it will use part of this funding to maintain the South African Air Force’s fighter capability. In addition, the government allocates R1 billion to the police service and a further R1 billion to the South African National Defence Force through the CARA fund to strengthen the fight against organised crime.

Over the medium-term, public-sector spending on infrastructure will exceed R1 trillion. R577.4 billion will be spent by state-owned companies and other public entities; R217.8 billion by provinces; and R205.7 billion by municipalities.

DIVISION OF REVENUE

In 2026/27, the government allocates 48.9 per cent of nationally raised revenue to national departments. Meanwhile, it directs 41.7 per cent to provinces and the remaining 9.4 per cent to local government.

The split translates to R951,7 billion for the national government, R810.5 billion for provinces, and R182,3 billion for municipalities. Additional allocations to the provincial equitable share include: R342 million to progressively equalise Grade R teacher pay. R340 million for the early retirement and voluntary exit programme. And R319 million for the presidential employment initiative. R1.5 billion is added to the provincial roads maintenance grant in 2026/27. This will fund the carry-through costs of the disasters that occurred between April 2024 and June 2025. The government allocates R86.9 billion to local government to support the provision of free basic services to 11.2 million households. It also allocates R27.7 billion over the medium term to a performance-linked reform programme for metro trading services in electricity, water, sanitation, and solid waste.

ON THE HORIZON

Following recommendations from the Financial Sector Conduct Authority, treasury will introduce reforms to manage unclaimed financial assets and benefits. They will do this through the creation of a central administrator responsible for record-keeping and tracing. Draft regulations will soon be published under the Currency and Exchanges Act. This will include crypto assets in the capital flow management regime. Crypto assets will be governed in the cross-border movement of capital framework. This will be complementary to regulations already in place to prevent the use of crypto assets to launder money and commit fraud.

The use of data and artificial intelligence has become critical for the future development of economies worldwide. This year, treasury will explore options to help data centres and related infrastructure. They will help them expand investments in South Africa and solidify our role as a regional hub for the technologies. Treasury is easing restrictions on the cross-border flows of capital by enabling domestic asset managers to manage portfolios of foreign assets. This will improve competitiveness and allow South Africa to

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