25/02/2026
South Africa may have received its best national budget in many years
That may be a bold statement, but the bar is exceptionally low, particularly after last year’s fiasco when Finance Minister Enoch Godongwana unilaterally proposed a two-percentage-point Vat increase in the name of fiscal consolidation. That episode raised serious questions about the National Treasury’s politicisation of the budget.
This year’s Budget is markedly different. It is not dramatic and makes several positive announcements.
The most significant development is the steady strengthening of the primary surplus. A primary surplus means tax revenue exceeds government spending before any interest payments on debt are made. It shows that the government is not funding its operational expenditure with debt.
The first primary surplus was reported in 2023 and has steadily increased to R72 billion, or 0.9% of GDP, in the current financial year. It is set to increase further to R210 billion in the 2029 tax year, or a substantial 2.3% of GDP.
This is the pivot needed to reduce government debt, which was approaching unsustainable levels.
Total government debt is expected to peak at roughly 79% of GDP this year and then begin a gradual decline. That marks a turning point after 17 years of uninterrupted increases, during which debt rose from 28% of GDP in 2009 to 79%.
The debt burden remains uncomfortably high, and the state still spends more than 20c of every rand of revenue on interest. But, significantly, this critical fiscal ratio is expected to decline in the near future.
The improvement does not stem solely from short-term tax windfalls from higher commodity prices, but also from other austerity measures that seem to be working. This includes identifying and removing ghost workers, offering early retirement packages, and cutting funding to inefficient programmes.
The decision to scrap the previously announced R20 billion in tax increases reinforces that shift. Personal income tax brackets were adjusted for inflation, ending two years of bracket creep. Medical tax credits were raised.
Godongwana also increased the thresholds for tax-free savings and retirement contributions, a move the industry has long pleaded for.
Growth projections have also been revised modestly higher, with the economy expected to move closer to 2% over the medium term. That may sound uninspiring, but after a decade of stagnation, even modest, sustained growth materially strengthens the fiscal outlook and supports debt stabilisation.
However, the National Treasury has historically tended to be overly optimistic in its forecasts, and it remains to be seen whether these projections will materialise.
While the national balance sheet is clearly improving, that progress is not yet translating into better lived experiences for most South Africans. Service delivery failures at the municipal and metro levels remain widespread, and for many households – whether in Gauteng’s urban centres or rural towns – frustration is tangible. Fiscal consolidation at the national level does little to ease the daily realities of unreliable water, electricity, roads and basic administration.
In that context, the minister’s encouragement for municipalities to make greater use of public-private partnerships is significant. Where local government lacks capacity or funding, leveraging private-sector expertise and capital could materially improve service delivery. If appropriately implemented, it would not only strengthen infrastructure outcomes but also reduce the reflexive dependence on the state as the sole provider of essential services.
It is slightly disappointing that Godongwana did not announce more details on a fiscal anchor, as promised beforehand. A clearly defined fiscal anchor – similar in spirit to how inflation targeting guides monetary policy – would guide fiscal spending and debt reduction. Without it, the sustainability of this consolidation still relies heavily on political will rather than institutional constraint. Godongwana committed to providing more detail in the MTBPS in November.
None of the good news in this budget suggests that South Africa is out of the woods. Debt is still very high. Service delivery at municipal level remains weak. Fiscal slippage remains a risk, particularly if growth disappoints.
But all in all, this budget shows that although the wheel of change in government has been turning very slowly over the past decade, it now appears to be accelerating.
Regards,
Ryk van Niekerk
Editor, Moneyweb
