Background to 2026 Budget

Key topics:2024 Budget relied on contingency reserves, stealth taxes to ease shortfall2025 VAT hike failed, forcing budget cuts and political chaos2026 Budget shaped by shrinking tax base and coalition constraints.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Alec Hogg in Parliament.To understand the sheer complexity of the 2026 Budget, we must first look in the rearview mirror. The past two budgets tell a story of a National Treasury running out of easy options, caught between a stagnant economy, a restless Government of National Unity (GNU), and an insatiable public sector..2024: The Election-Year Buffer and the GFECRA Raid.The 2024 Budget was an exercise in buying time ahead of the most highly contested election in South Africa's democratic history. Faced with a revenue shortfall of R56.1 billion—driven largely by a collapse in mining taxes due to load-shedding and port bottlenecks—Treasury had to find money, fast.An even bigger challenge was finding a way to pay for the politically-inspired ‘bonsela’ of R251bn the then fully-in-control ANC leadership voted to appease public sector wage demands (and pull in much needed votes from its most devoted constituency). The rational approach would have been to hike taxes. Instead the newish Finance Minister Enoch Godongwana pulled a rabbit out of the hat by accessing the national Gold and Foreign Exchange Contingency Reserve Account (GFECRA). By drawing down R150 billion on the basis of valuation gains, the government managed to artificially suppress its gross borrowing requirement and service its debt without suffocating the electorate.However, the 2024 Budget was not without indirect pain. Treasury relied heavily on stealth taxes - freezing personal income tax brackets and medical aid credits and allowing ‘bracket creep’ which occurs when inflation-linked salary increases push taxpayers into higher brackets. In SA’s progressive tax system, unless there is conscious addressing of this fiscal drag affect, Treasury reaps many billions by simply doing nothing to the tax tables. .2025: The Year of the VAT Revolt.In 2025 the chickens came home to roost. Despite its gift to public servants, the electorate punished the ANC forcing the formation of the GNU which fundamentally altered the budget-making process.Godongwana walked into Parliament with a brutal arithmetic problem and attempted to force through a deeply unpopular two percentage point increase in Value-Added Tax (VAT) to fund a R173 billion net increase in spending. The political backlash was immediate. The proposal fractured the GNU, leading to a scrapped budget and a chaotic scramble that, weeks later, birthed "Budget 3.0."The VAT hike was ultimately abandoned, forcing Treasury to slash provisional allocations by R40 billion and raid the contingency reserves just to balance the books. Critically, the 2025 debacle proved broad-based tax hikes are politically impossible under the current coalition structure. That leaves Treasury cornered and with its reliance on an already overburdened and continuously narrowing tax base, the State’s overspending instincts are now constrained by the golden straitjacket of local and global borrowers.

Background to 2026 Budget

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