Compared to last year, the 2026 budget speech by Finance Minister Enoch Godongwana on Wednesday was a resounding success — at least in delivery, if not content.
The minister outlined SA’s recent revenue performance, medium-term outlook and proposed tax changes.
His message was clear: “We committed to a clear reform agenda and a disciplined fiscal strategy built on three principles: stabilise debt, invest in infrastructure and spend better.”
Tax revenues
National Treasury has revised its 2025/26 gross tax revenue estimate upward by R21.3bn to R2.01-trillion, resulting in a tax-to-GDP ratio of 25.9%.
Despite weaker-than-expected nominal GDP, higher collections from VAT, corporate income tax and dividends tax strengthened the fiscal position.
As a welcome result, the government has withdrawn the R20bn tax increase previously pencilled in for 2026 and will provide inflationary relief to taxpayers, including R13.7bn in personal income tax relief.
The tax base: narrow and underperforming
SA’s tax system is progressive, but reliant on a narrow base. Recent statistics show that the top 13% of taxpayers contribute over 60% of personal income tax. Direct taxes (personal and corporate) still account for about 55% of total government revenue.
While buoyancy remains strong, the minister noted that excessive reliance on high direct taxes may dampen growth and encourage avoidance.
Over the medium term, revenue growth is projected to moderate, with the tax-to-GDP ratio rising to 26.2% by 2028/29.
The scourge of illicit trade ... threatens our economy, endangers consumers, and robs the fiscus of billions in revenue
— Finance Minister Enoch Godongwana
Over the past year, VAT collections were supported by resilient household consumption and lower refunds, though import VAT underperformed. Corporate tax benefitted from improved profitability, particularly in mining, driven by higher platinum and gold prices.
Unsurprisingly, personal income tax and specific excise duties underperformed due to weak wage growth and lower cigarette and fuel-related receipts.
Illicit trade in alcohol and cigarettes undoubtedly contributed significantly to the underperformance.
As Godongwana put it, “The scourge of illicit trade ... threatens our economy, endangers consumers, and robs the fiscus of billions in revenue.”
In line with inflation
After two years of no change, personal income tax brackets, rebates and medical credits will be adjusted for inflation (3.4%) in 2026/27.
Excise duties on alcohol and tobacco will increase in line with inflation, while the general fuel levy will rise below inflation, alongside increases in the carbon tax.
Long-overdue threshold increases for VAT registration (up to R2.3m for the first time in 17 years) and capital gains tax relief for small businesses have been introduced, while savings and retirement contributions will also increase.
Changes to tax-free savings and retirement limits:
- The tax-free annual investment limit will be increased from R36,000 to R46,000 per year.
- The limit to retirement fund deductions is to be raised from R350,000 to R430,000, allowing individuals to invest more each year on a tax-free basis.
Crypto assets
Godongwana announced that the government would shortly publish draft regulations under the Currency and Exchanges Act to include crypto assets in our capital flow management regime.
This means that crypto assets will now be governed by the cross-border movement of capital framework, which will complement regulations already in place to prevent the use of crypto assets to launder money and commit fraud.
Spending priorities
“Government spending remains highly redistributive. The social wage accounts for more than 60% of non-interest spending over the medium term,” Godongwana said.
In line with the above, key spending proposals for the total expected expenditure of R2.67-trillion include:
- Spending on peace and security increases from R268.2bn in 2025/26 to R291.2bn in 2028/29.
- The old-age grant, disability grant, and care dependency grant rise by R80 in April 2026 to R2,400.
- R2.7bn is added to defence over the medium term to improve operations, including to maintain the SA Air Force’s fighter capability.
- The split translates to R951.7bn for the national government, R810.5bn for provinces and R182.3bn for municipalities.
Final thoughts
The 2026 Budget reflects a disciplined and forward-looking fiscal strategy focused on stabilising debt, strengthening infrastructure investment, and improving spending efficiency.
Encouraging revenue performance has enabled meaningful tax relief and the withdrawal of previously proposed increases offers welcome support to individuals and businesses.
Targeted adjustments signal a commitment to inclusive growth and long-term sustainability.
This article was sponsored by AJM.
