The Finance Minister was giving the budget speech last Wednesday Enoch Godongwana He said South Africa had reached a “turning point” in its finances. We asked four leading economists for their views on the budget, South Africa's prospects and what still needs to be done. These economists are: Haroon Bhorat From DPRU; Andrew Donaldson From Saldru; ada janson from Stellenbosch University, and Anna-Maria Oosthuizen From UNU-Wider.
Bhorat, Jensen, Oosthuizen and Donaldson look at the budget from different angles, from tax policy to infrastructure investment and state capacity, but a common theme runs through their assessments: fiscal stabilization represents significant progress, but it does not address the deeper obstacles holding back economic growth.
They agree that the fiscal outlook has improved significantly. The projected stabilization of public debt after years of rising borrowing marks a meaningful change. Financial conditions have also become more favorable, with lower bond yields and expectations of more stable inflation reducing pressure on debt-service costs.
At the same time, they noted that economic growth remains modest, unemployment remains high, and investment levels are still below the level needed to support continued expansion. In this environment, fiscal consolidation will occur gradually.
As Oosthuizen said, “stabilizing the gross debt-to-GDP ratio at 78.9% is the central fiscal achievement”.
“In the Treasury's debt and fiscal projections, there is a clear shift,” says Donaldson. “Debt has reached just under 80% of GDP, and for the first time in more than a decade, interest on debt is projected to grow more slowly than spending on education or health.”
Part of this success stemmed from SARS collecting more revenue than expected. Donaldson says this increase bodes well for confidence in SARS, reducing pressure on the fiscal system, and allowing the government to drop planned R20 billion revenue-raising measures.
But the increased tax revenue is partly the result of higher commodity prices, a stronger rand and increased spending, Jensen says, and there is no guarantee that will continue.
Development
The elephant in the room is low growth rates. The Treasury's own projections are modest: about 1.6% this year, 1.8% next year, reaching just 2% in 2028. According to Jensen: “For sustained growth in tax revenues and less reliance on borrowing, the economy must grow at a much faster pace than published predictions to ensure expansion of the economic tax base.”
Growth is traditionally the bridge that allows countries to spend a little more without increasing debt to unsustainable levels; In other words, growth allows the government to maintain fiscal discipline without austerity measures. With low growth, it is difficult to raise revenues without imposing heavy taxes, and there is a limit to how much spending can be cut without reducing service delivery or provoking a political fight over the public service wage bill.
taxes
For Bhorat, the budget is “probably the most comprehensive tax reform package that we have seen in at least a decade and possibly since democracy.”
The Minister announced adjustments to personal income tax brackets, a higher threshold for small business VAT registration and changes to the retirement savings limit to limit bracket creep. Many of these limits have not been updated for years or decades.
Source: National Treasure
It remains to be seen whether these measures will lead to higher growth. Both Bhorat and Janssen say higher tax-deductible pension contributions will only make sense for those who can afford to spend more than R350 000 a year on their pension. Whether these excess savings will be put to productive use will also depend on asset allocation, for example, how much of the excess savings is invested in South African bonds and businesses.
According to Bhorat, the VAT registration threshold increases and other relief measures for small businesses should have a meaningful impact.
For businesses earning between R1-million and R2.3-million, the change to the VAT threshold will result in potential savings of up to R345,000, including reduced compliance costs. It could mean another employee, a new printer, new equipment, he says.
But the budget will not help those very small, survivalist enterprises that do not reach the current VAT threshold of R1-million, which are vital to South African employment, such as micro and informal businesses. Tax relief measures can only reach those who are part of the tax system. According to Bhorat, help for very small businesses should come from local government support and regulation rather than from the Treasury.
In terms of redistribution, social grants are increasing, but only in line with inflation. However, Bhorat highlights the redistributive potential of unclaimed pensions, life insurance and other benefits. The Minister's announcement of a “Central Administrator” to investigate unclaimed benefits is a step in the right direction. Bhorat points out that at an estimated R88-billion, “this is a huge instrument of redistribution that is on our doorstep”.
infrastructure
Along with tax reforms, another avenue of growth in the Budget is to focus more on infrastructure and reforms in key sectors such as power and logistics as important drivers of economic growth.
Oosthuizen highlights the importance of fiscal sustainability in supporting investment in the power sector. Stabilizing public debt helps reduce borrowing costs.
Institutional developments in the energy sector also indicate a shift towards a more decentralized electricity market. The establishment of the National Transmission Company of South Africa (NCTSA) as a market operator is part of a broader transformation in which private capital is expected to play a larger role in generation and grid expansion.
“Fiscal credibility reduces the sovereign risk premium, reducing borrowing costs for capital-intensive renewable energy,” says Oosthuizen. “At the same time, the energy sector is moving toward execution as NTCSA receives its market operator license. This creates a self-reinforcing cycle: fiscal stability attracts private green capital, while reliable power sustains the growth needed for debt sustainability.”
“The state is now the coordinator of a decentralized energy economy rather than a monopoly provider,” says Oosthuizen.
waste
However, the success of these initiatives will ultimately depend on implementation.
All four economists highlighted the need to move from expenditure to returns on expenditure.
Bhorat says South Africa spends amounts compared to other middle-income countries in areas such as education, yet achieves weak results. He says that waste and corruption destroy the effectiveness of public expenditure. Improving efficiency and enforcing accountability will significantly change the fiscal picture without cutting frontline services. “The return on spending we are getting is still very low.”
Donaldson draws attention to growing efforts to strengthen institutional oversight, particularly in provincial administrations and municipalities where governance challenges have weakened service delivery.
He explains that the budget signals a new approach from the National Treasury towards dysfunctional provincial departments and municipalities.
“The national government is now moving from oversight to active structural intervention…” This would include centralized control of payroll and headcount, implementing fiscal recovery plans, and strict conditions attached to financial flows across provinces and municipalities. It also includes technological reforms such as a “Smart Meter Grant Program” to improve billing accuracy and address leaks and illegal electricity connections.
But deeper spending reforms may be necessary. Donaldson says the Treasury's Targeted and Responsible Savings (TARS) has “achieved almost nothing”. He says the savings identified in the budget include R4 billion per year, but a bold approach is needed if money is to be shifted to more productive uses. “The target should be Rs 100 billion per year,” he says.
Donaldson suggested five reforms:
- Abolish district municipalities, which “serve no clear democratic purpose”.
- Abolish Sector Education and Training Authorities (SETAs), which are “expensive and inefficient”, and abandon the levy. This will benefit businesses, “allowing them to finance training as needed, rather than being subject to all the rules and bureaucratic processes.”
- Reorganize the Road Accident Fund as a limited benefit scheme, with the balance of cover left to the insurance providers.
- Reject the expansion of the Unemployment Insurance Fund, which plans to increase its administrative staff from 3,424 in 2024/25 to 11,424 next year, while expanding its activities to include skills audits, employment subsidies and the provision of enterprise support. Its reported expenditure increased from R26 billion in 2024/25 to R48.8 billion in 2025/26. “Treasury should simply say ‘no’,” says Donaldson. “It is absurd that public health and education programs are subject to strict spending controls, while funds administered by the Department of Employment and Labor are given a free hand.”
- Review of the Southern African Customs Union agreement: The distribution of more than R78 billion to neighboring countries next year “no longer rests on any defensible rationale from a trade or regional development perspective”.
More broadly, they say, the Treasury's expenditure planning and control systems should be extended to cover the 196 public entities that perform statutory functions and are dependent on fiscal revenues but fall outside the expenditure control remit of the budget process. “Their boards and executive staff are often paid more than senior departmental officials, their programs are not subject to Treasury review, and, in many cases, they have funds that should be properly controlled by the Treasury.”
Overall, economists' assessments suggest that the 2026 budget represents a meaningful step towards stabilizing South Africa's public finances. Credit dynamics have improved, revenue collection has strengthened, and reforms are underway in key sectors such as energy and local government support.
“The move towards active structural intervention in local governance and network industries signals a fundamental realignment. This is reflected in the logistics sector, where the state is opening up rail and port access to private players. Ultimately, the state is strengthening its role as a coordinator and regulator, reshaping itself to de-risk the economy and enable private capital,” says Oosthuizen.
Yet stabilizing the fiscal framework is only the beginning. Sustained economic recovery will depend on whether structural reforms translate into productive investment, stronger institutions, less waste and faster growth.
Written by Abena Larbi-Odam and Matthew Dusnois, Econ3x3