(Photo: selensergen/iStock)
The 2026 budget shows the government has achieved important fiscal policy objectives, according to Enoch Godongwana, the minister of finance.
“We have reached an important turning point in the management of our public finances,” Godongwana said on Wednesday when he tabled the 2026 national budget in parliament.
“We committed to a clear reform agenda and a disciplined fiscal strategy built on three principles: stabilize debt, invest in infrastructure and spend better. Today, that commitment has produced tangible results.
“For the first time in 17 years, debt will stabilize and it will continue to fall in the coming years. The budget deficit has narrowed significantly, and debt servicing costs are also falling,” said Godongwana.
The consolidated budget deficit narrowed to 4.5% of GDP for 2025-26, an improvement from the 4.8% estimated in the 2025 budget. The deficit falls to 4% in 2026-27 and 3.1% the year after. Gross debt stabilizes as a percentage of GDP in 2025-26, at 78.9%.
In 2026-27 it falls further to 77.3% of GDP and falls to 76.5% by 2028-29.
“The slightly higher debt peak this year reflects weaker nominal GDP growth and our decision to take advantage of strong investor demand in local and global markets by increasing issuance in 2025-26,” Godongwana said.
The primary budget surplus for 2025-26 reaches 0.9% of GDP. In the next financial year, it expands to 1.6%, and then to 1.9% in 2027-28.
“By 2028-’29 it will reach 2.3%,” Godongwana said on Wednesday.
Economic growth
The team from the treasury before the delivery of the budget speech. (Photo: GCIS)
Economic growth prospects are improving slowly but surely.
The national treasury projects economic growth of 1.6% in 2026.
Meanwhile, the economy is expected to grow by 1.4% in 2025, compared to the 1.2% projected in the medium-term fiscal policy statement for 2025.
Real GDP growth is projected to average 1.8% over the medium term and reach 2% in 2028.
This reflects stronger household purchasing power relative to the previous projection, the Treasury says.
Household consumption growth is expected to reach 3.1% in 2025 before slowing to 1.8% in 2026.
From 2026 to 2028, household consumption is forecast to average 2%, and will continue to benefit from rising wages, lower inflation, gradual interest rate cuts, a stable power supply and improved sentiment.
After four consecutive quarters of positive economic growth, there is real optimism about the growth prospects. More reliable energy, improved logistics, stronger public finances and lower borrowing costs all contribute to the improved outlook.
“However, persistent logistical bottlenecks, poor public infrastructure and the recent outbreak of foot-and-mouth disease continue to weigh on economic activity and pose risks to the outlook,” Godongwana said on Wednesday.
Economic growth also remains far below the levels needed to significantly reduce unemployment and generate sufficient income to expand social and economic services.
Critical reforms to increase GDP growth, improve government efficiency and scale up public investment will therefore now be prioritized to give momentum to the economic recovery.
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Macro stability
The Treasury says macroeconomic stability is an essential foundation for sustained growth and investment. The government improved stability by implementing its plan to stabilize public debt in the current fiscal year.
Government debt stabilizes in this financial year and will decline thereafter. This will enable the government to protect funding for vital public services.
Lower borrowing costs and an improved inflation outlook following the decision to lower the inflation target to 3% will also encourage private investment and job creation.
Lower and more stable inflation is believed to support real household incomes and consumer spending.
The Treasury believes the government is on track to meet its fiscal targets over the medium term without burdening taxpayers with further increases. The tax increase of R20 billion that was provisionally announced for the 2026 budget has therefore been withdrawn.
Greater emphasis will now be placed on improving the efficiency of government spending, the Treasury believes.
The Treasury says government departments will need to be more deliberate in motivating their budgets rather than simply increasing them annually with inflation, with a focus on providing evidence-based assessment for the continuation of programs and projects.