Improving data on GDP, fiscal debt and inflation does not necessarily mean that the time is right for finance minister Enoch Godongwana to announce tax increases in any category or to scale back tax incentives and credits when he tables his budget on Wednesday.
This is according to experts, who have warned against allowing pervasive bracket creep, or instances where nominal salary increases push taxpayers into higher tax brackets even though their purchasing power has not meaningfully improved.
Godongwana tables the 2026 budget on Wednesday afternoon in a joint sitting of parliament. The speech comes as South Africa’s GDP growth is expected to reach the 1% mark within the medium term, commodity prices continue to rally and consumer price inflation (CPI) gets closer to the South African Reserve Bank’s 3% target.
The speech is also widely expected to be accepted by the parties in the GNU and ultimately adopted by the legislature, unlike the 2025 budget, which took three attempts to be passed.
Hayley Parry, co-founder of Cumulate and head of financial education at Worth, said any small savings from a lower interest rate environment are quietly eroded by income tax bracket creep.
“For middle-income earners especially, disposable income has been shrinking in real terms. When salaries rise just enough to keep pace with inflation but tax thresholds don’t adjust sufficiently, there is no real wealth creation — only higher taxes.”
She said there was a quiet stagnation in savings incentives, such as the annual Tax-Free Savings Account (TFSA) limit, which remains R36,000, with a lifetime cap of R500,000 ― thresholds that have not meaningfully moved in years.
“In an inflationary environment, standing still is effectively moving backwards. The real value of those limits erodes over time, especially when one considers that the yearly limit has been the same since March 2020 and the lifetime cap hasn’t changed in nine years.”
She said the lifetime cap should have been moved up to R800,000 just to keep pace with inflation — in 2025 terms, that’s the amount you would need to buy what R500,000 would buy in 2015, which is when tax-free savings accounts were introduced.
“Similarly, retirement contributions remain deductible at up to 27.5% of taxable income, capped at R350,000 per year. That cap has also remained static since March 2016 and had it kept pace with inflation since 2016 it would be closer to R550,000 today.
“For many earners, particularly those trying to accelerate retirement savings later in life, this reduces the effectiveness of one of the few meaningful tax-efficient tools available.
If we want citizens to build resilience we need to create room for them to do so.”
She said a good budget should not only stabilise sovereign debt ratios or balance fiscal frameworks but should also strengthen the financial position of the average household.
Katlego Mothudi, MD of the Board of Healthcare Funders, urged Godongwana to provide clear policy certainty that medical scheme tax credits will be retained and announce that medical tax credits will be increased at least in line with inflation.
“In recent briefings to parliament, the department of health indicated that medical scheme tax credits may be phased out and ultimately scrapped to help fund National Health Insurance.
“For the nearly 9-million South Africans covered by medical schemes, of which 67% are low- and middle-income earners, these credits are not a luxury but a critical financial support. Eliminating them prematurely would increase household healthcare costs and risk pushing an estimated 430,000 to 690,000 members out of cover due to unaffordability.”
For the individual taxpayer, the 2026 budget isn’t about handouts or relief, it’s about defence. The government is tightening the net not by changing the rules but by aggressively enforcing the ones that already exist and letting inflation erode your benefits.
— Lance Collop, founder of Collop Tax Collective
He said there is a compelling case for reviewing and strengthening credits to ensure they continue to serve their core affordability purpose.
“Medical tax credits are not a subsidy for the wealthy; they are a lifeline for ordinary South Africans to keep quality healthcare within reach. When their value quietly declines year after year, it is working households who feel the squeeze. If the government is serious about attaining universal health coverage it cannot allow the stealth reduction in these credits to continue.”
He said the continued erosion of the credit’s real value increases affordability risks and may lead to downgrades in cover, the removal of dependants or complete exit from schemes, destabilising medical scheme risk pools, reducing cross-subsidisation and increasing pressure on an already overstretched public health system.
“It would be fiscally and socially counterproductive to dismantle existing funding mechanisms long before a fully operational alternative is in place. At a minimum, medical tax credits should be adjusted annually in line with inflation to preserve their real value and protect affordability.”
Lance Collop, registered chartered accountant and founder of Collop Tax Collective, said Godongwana was unlikely to announce a dramatic increase in personal income tax rates, but for the average salary earner and the professional middle class, there was a risk of entering an era of the “Stealth Tax”.
“The government’s most effective tool for raising revenue isn’t a new tax law; it’s inflation. If you receive an inflation-linked salary increase this year — say, 5% — but the tax brackets aren’t adjusted to match it, you effectively get pushed into a higher tax bracket. You earn more on paper, but you take home less in real terms.”
He said in 2026, with the National Treasury desperate to plug a multi-billion rand revenue hole, “fiscal drag” is the easiest lever to pull. The most aggressive form of this “passive” taxation is happening to your healthcare through medical aid tax credits, he said.
“For years, we have debated whether the government will scrap medical aid tax credits to fund NHI. The reality? They don’t need to scrap them to make them irrelevant. They just need to let inflation do the work.
“For the last few budget cycles, the Medical Scheme Fees Tax Credit has barely moved. In real terms, it has stagnated. Meanwhile, your medical aid premiums haven’t. Medical inflation typically runs at CPI plus 3%-4%.”
Every year, contributions jump by roughly 10%, but the tax credit - the small monthly rebate the South African Revenue Service offers to subsidise that cost remains virtually frozen.
“For the individual taxpayer, the 2026 budget isn’t about handouts or relief, it’s about defence. The government is tightening the net not by changing the rules but by aggressively enforcing the ones that already exist and letting inflation erode your benefits.”
He said the gap between what taxpayers earn and what they keep is widening — not with a bang, but with a whisper.
Sunday Times
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