Not so creepy: Budget 2026By: Sisamkele Isipho Kobus, Senior Research Analyst25 February 2026 | Read time: 4 min

      Leading up to the 2025 budget, there were a lot of concerns and anxiety in the market. The Democratic Alliance (DA) had publicly stated a week before the budget that it would not support a VAT increase. As a result, the markets were worried that the budget would break the Government of National Unity (GNU), and it came quite close, too. The politicians eventually cobbled together a compromise. The commotion of it all gave Dr Duncan Pieterse, Director-General at National Treasury, the space to tighten up the budgetary processes and reinforce fiscal prudence. We saw this manifest in the Medium-Term Budget Policy Statement (MTBPS) 2025, and this year’s budget reinforces that prudence, with a tilt to supporting real GDP growth.

      A few months before last year’s MTBPS, National Treasury released its budget guidelines with the inclusion of more consultation between itself and cabinet throughout the budgeting process, and a more structured approach to spending reviews (something GNU partners have been advocating for). The Targeted and Responsible Savings was implemented in the MTBPS already – at the time, Treasury had expected R6.7bn of savings over the medium-term expenditure framework. This has now increased to R12bn. 

      This budget removes the revenue raising measures of R20bn that National Treasury had pencilled in. This would have likely been bracket creep. The full inflation adjustment to tax brackets allows more breathing room for households. There is also an additional suite of adjustment thresholds allowing less penalties on small businesses and encouraging savings. More than some support to growth – this budget continues to reinforce the path to sustainability.

      On a sustainable path – but caution still warranted

      National Treasury expects debt-to-GDP to peak in 2025/26 at 78.9% and start stabilising into the coming fiscal year getting to 68% by 2033/34. They presented a similar picture on the MTBPS 2025 – with a slight deterioration in the current fiscal year as the cash buffers improved due to over issuance. This improvement is underpinned by a steady and growing primary balance, which National Treasury has already committed to around 2021. We saw the manifestation of that commitment in the 2023 MTBPS when they cut spending significantly after the commodity windfall had decreased, resulting in significant downward revisions in revenue. This growing primary surplus has been an unofficial fiscal anchor – and has done a significantly better job than the previous expenditure ceiling anchor.

      Figure 1 looks at South Africa’s credit ratings path versus debt-to-GDP. Of course, debt-to-GDP is not the only driver of credit ratings, but it does highlight the improving trajectory of South Africa’s sovereign credit risk premium.

      The macro reforms we have seen – from the inflation target change, the reforms implemented to warrant a removal from the Financial Action Task Force, and the continued prudence from National Treasury – imply that the narrowing we saw in South Africa’s credit risk premium with the rally in bonds is unlikely to unwind. National Treasury cites that the narrowing of the credit risk premium was from 2.93% a year ago to 2.26%.

      Figures 2.1 and 2.2 show the continued improvement in the primary balance, which improved from -R140bn in FY19/20 to a surplus of R72bn in the current FY25/26. This was driven by improved collection with the recapacitating of SARS. The efficiency gains from SARS can be seen in Figure 3 below, with tax buoyancy highlighting the higher growth rate of tax revenue versus nominal GDP over the last three years. 

      The picture shown by National Treasury is still quite conservative, as the current revenues versus the MTBPS 2025 are reduced due to the removal of the R20bn revenue-raising tax proposals. So, as the DA put it earlier this week, the budget is less (budget) creepy. It allowed for full inflation adjustment to tax brackets and medical tax credits. They have marginally revised company income tax and mining royalties by about R10bn cumulatively, despite the high commodity prices and therefore have an upside of close to R40bn on their revenue expectations.  

      Spending also remains under control, with a growth rate of 3.5% over the Medium-Term Expenditure Framework. 

      • The 2026/27 fiscal year is expected to increase by 2.4% year-on-year, and the spending trajectory is expected to see an improvement in non-interest spending from about 27.7% of GDP to 26.6% by 2028/29.
      • On the other hand, revenue will continue to be at 28.8% of GDP.

      “South Africa’s economic recovery is starting to gain traction”, according to Finance Minister Enoch Godongwana. In this budget, National Treasury has supported this recovery while continuing to remain prudent. Credit rating agencies should be happy with this, and we should see upgrades from each of them before the end of 2026. The chokehold that government had on capital, by crowding out investment, has eased. Now, we need to see continued reform momentum to translate the improved business confidence into investment, growth and employment.