Unisa Professor Cameron Modisane
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By Professor Cameron Modisane
The 2026 Budget Speech delivered by Finance Minister Enoch Godongwana comes at a delicate time for South Africa’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 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 2026meaningfully shifts South Africa’s fiscal path or simply manages existing pressures more carefully. Government plans to spend R2.67 trillion in 2026/2027.
Of this amount, R1.58 trillion is allocated to social services. Education receives R527.2 billion, health R310 billion, social development R446.6 billion and community development R294.3 billion. This confirms that the social wage remains central to 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 R432.4 billion. 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 percent before gradually declining. The consolidated budget deficit is projected at 4 percent of GDP and is expected to narrow to about 3.1 percent over the medium term. 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 1.6 percent 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. Debt service costs currently consume more than 21 percent of revenue. Although this ratio is expected to decline slightly over the next few years, it remains high. South Africa is spending more on interest payments than on many key development priorities. That reality limits flexibility and places pressure on future budgets.
On growth, government projects that the economy will gradually improve, reaching about 2percent 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 percent is not sufficient to significantly reduce unemployment or poverty. For debt to decline meaningfully and living standards to rise, South Africa requires sustained growth well above3 percent. Across Sub-Saharan Africa, average growth is projected at approximately 3.8percent. This means the region as a whole is expanding at more than double South Africa’s current 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 local level, increased allocations may not translate into visible improvements in communities. For ordinary taxpayers, Budget 2026 brings some relief. A previously anticipated R20 billion tax increase has been withdrawn. Personal income tax brackets and rebates are adjusted inline with expected inflation of about 3.4 percent 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 R1 million to R2.3 million 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. Excise duties on tobacco and alcohol increase broadly in line with inflation. Fuel levies also rise modestly. These adjustments avoid sharp shocks but do little to ease the broader cost of living pressures faced by many households. Food prices, transport costs, school fees and medical expenses continue to strain family budgets. Revenue collection has been resilient, reflecting improvements in tax administration. At the same time, illicit trade remains a threat to revenue and legitimate business activity. Strong enforcement and coordinated action will be necessary to protect the fiscus. Ultimately, the success of Budget 2026 will depend less on projections and more on implementation. Fiscal credibility is built through disciplined spending, effective oversight and clear consequence management.
Without addressing corruption and inefficiency, even well-designed budgets fail to deliver tangible outcomes. Budget 2026 is cautious and technically disciplined. It protects the social wage, avoids major tax shocks and offers moderate relief to taxpayers and small businesses. Yet debt remains high, growth remains modest, and interest costs continue to absorb a significant share of revenue. Markets may be reassured by fiscal anchors and narrowing deficits. South Africans do not experience fiscal anchors, but they experience service delivery, employment opportunities and cost-of-living realities. They will measure it by functioning clinics, reliable water supply, safe streets and real job opportunities. If the projected debt stabilisation materialises and reforms translate into tangible improvements, this Budget may indeed mark a turning point. If growth underperforms and implementation falters, stabilisation will remain an aspiration rather than an outcome.
A national budget must balance the accounting books. But its ultimate purpose is to improvelives and to provide economic relief to communities. Whether Budget 2026 becomes agenuine turning point will depend on growth, governance and delivery in the years ahead.The real test of Budget 2026 will not lie in spreadsheets, but in whether it improves the livedreality of ordinary South Africans.
*Professor Cameron Modisane is the Deputy Executive Dean in the College of Accounting Sciences at University of South Africa (Unisa)