The 2026 budget speech delivered by finance minister Enoch Godongwana comes at a delicate time for SA’s economy. Growth remains modest, public debt is stubbornly high and households continue to struggle with the rising cost of living.
A national budget is more than a financial statement. It reflects the government’s priorities and translates policy promises into real allocations through the Appropriations Bill, the Division of Revenue Bill and related tax legislation. The central question is whether Budget 2026 shifts SA’s fiscal path or simply manages existing pressures more carefully.
The government plans to spend R2.67-trillion in 2026/27. Of this amount, R1.58-trillion is allocated to social services. Education receives R527.2bn, health R310bn, social development R446.6bn and community development R294.3bn. This confirms that the social wage remains central to the government policy.
In a country marked by high unemployment and inequality, protecting these allocations is essential for stability. However, one figure stands out. Debt service costs amount to R432.4bn. This is money used to pay interest on past borrowing rather than to build infrastructure, expand services or stimulate growth. Every rand spent on interest reduces the space available for development.
The minister has described this budget as a turning point supported by a principle-led fiscal anchor. Debt to GDP is expected to peak at about 78.9% before gradually declining. The consolidated budget deficit is projected at 4% of GDP and is expected to narrow to about 3.1% over the medium term. The government also anticipates achieving a primary surplus, where revenue exceeds non-interest expenditure.
These projections are important for investor confidence and market stability. Yet the debt story is more complex. In recent years debt projections have been revised upward several times. Economic growth remains weak, forecast at around 1.4% to 1.65% in the near term. When growth is low, the debt ratio improves slowly even if spending discipline is maintained.
Put simply, fiscal consolidation alone cannot resolve the debt challenge. Stabilising debt requires growth. Without stronger economic expansion, the debt burden remains heavy.
SA is spending more on interest payments than on many key development priorities.
— Prof Cameron Modisane
Debt service costs currently consume more than 21% of revenue. Although this ratio is expected to decline slightly over the next few years, it remains high. SA is spending more on interest payments than on many key development priorities. That reality limits flexibility and places pressure on future budgets.
On growth, the government projects that the economy will gradually improve, reaching about 2% by 2028. This is easier said than done, as past trends do not show that this would be achieved. According to the minister, this optimism is supported by planned public infrastructure investment exceeding R1-trillion over the medium term, alongside reforms in energy, transport and tourism.
These reforms are necessary. Reliable electricity supply, efficient logistics and improved investor confidence are fundamental to economic recovery. However, growth of 1.6% is not sufficient to reduce unemployment or poverty.
For debt to decline and living standards to rise, SA requires sustained growth well above 3%. Across Sub-Saharan Africa, average growth is projected at about 3.8%. This means the region as a whole is expanding at more than double SA’s pace.
Infrastructure spending is a positive feature of this budget. Capital formation supports long-term productivity. Yet, implementation remains the decisive factor. Municipalities, which are responsible for much of frontline service delivery, often face capacity and governance challenges. Without improved financial management and accountability at the local level, increased allocations may not translate into visible improvements in communities.
For ordinary taxpayers, Budget 2026 brings some relief. A previously anticipated R20bn tax increase has been withdrawn. Personal income tax brackets and rebates are adjusted in line with expected inflation of about 3.4% after two years of frozen thresholds. This prevents bracket creep, where workers move into higher tax brackets simply because their salaries rise with inflation.
In practical terms, if your salary increases only to match inflation, you will not pay more tax in real terms. Medical tax credits are also adjusted for inflation. This preserves purchasing power rather than increasing it, but it offers meaningful relief after a period of stagnation.
The annual tax-free savings account limit increases from R36,000 to R46,000, encouraging households to save and invest. Retirement fund deduction limits also rise, strengthening incentives for long-term financial planning.
Small and medium enterprises receive notable support. The compulsory VAT registration threshold increases from R1m to R2.3m from April 2026. This reduces compliance costs and administrative burdens for smaller businesses. It provides breathing room and may encourage entrepreneurship.
However, there are trade-offs. Businesses that are not VAT registered may appear more expensive to VAT-registered clients who cannot claim input credits. While the reform eases red tape, market realities remain complex.
- Prof Modisane is deputy executive dean for the College of Accounting Sciences at Unisa.
