Godongwana offers fuel relief but warns of weak growth and struggling municipalities

Finance Minister Enoch Godongwana has offered motorists and households temporary relief from rising fuel costs, while warning that sluggish economic growth and struggling municipalities continue to threaten South Africa’s recovery.

Presenting the Medium-Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, Godongwana announced R10 billion in fuel levy reductions to ease cost-of-living pressures.

Despite the challenges, he painted a cautiously optimistic picture of the economy, citing stronger tax revenue, a stabilising debt burden and positive international credit rating actions that have created room for increased spending. However, he warned that weak growth, rising global borrowing costs and municipal failures could undermine these gains.

Godongwana lowered the 2026 economic growth forecast from the 1,6% projected in February to 1,2%, citing global uncertainty and the impact of conflict in the Middle East on oil prices, inflation and borrowing costs.

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He said he expected growth to improve to 1,6% in 2027 and reach 2% by 2029, but that this would not be enough to create sufficient jobs or significantly improve living conditions.

“Growth, however, remains too low,” he told Parliament, calling for structural reforms, stronger state capacity and greater infrastructure investment.

Godongwana said efforts to stabilise public finances were beginning to pay off, with debt as a percentage of gross domestic product (GDP) expected to decline after stabilising at 78,4% in 2025/26.

The budget deficit is expected to narrow to 4,3% of GDP in the current financial year, improving on the February forecast of 4,5%, before falling further to 2,5% by 2030. All three major international credit rating agencies announced positive rating actions on South Africa earlier this year.

Godongwana attributed the gains to fiscal discipline, which he said had created room to protect essential services and stimulate investment. “The fiscal space created through disciplined budgeting allows us to protect frontline services, preserve the jobs of teachers, doctors and nurses, while protecting the social wage for the most vulnerable,” he said.

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Stronger-than-expected tax collections have prompted National Treasury to raise its 2026/27 gross tax revenue estimate by R17,1 billion compared with the February forecast. Higher corporate income tax, dividends tax and value-added tax collections largely drove the increase.

Gross tax revenue is expected to rise from R2,14 trillion this year to R2,53 trillion by 2029/30. However, Godongwana cautioned that higher commodity prices had contributed to some of the gains and were unlikely to sustain revenue growth over the medium term.

The improved outlook has allowed the government to increase spending by R45,5 billion compared with the February Budget. The additional funding will support disaster relief, crime-fighting operations, commissions of inquiry and the modernisation of the South African Revenue Service.

The fuel levy reductions will run from November 4 to December 1, with the general levy cut by R3 per litre for diesel and R1,50 for petrol. Reduced relief will continue until January 5, 2027. Godongwana also warned that poor financial management and operational failures continued to undermine municipal services.

Local government will receive 10% of the total equitable share over the medium term. Municipalities will also receive an additional R21,8 billion through the local government equitable share to help cover the rising costs of free basic water, sanitation, electricity and refuse removal.

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However, Godongwana said more funding alone would not resolve service delivery failures. “The issue can no longer be only about resources. It must also be about results,” he said.

He said municipalities must translate every rand received into tangible improvements, including reliable water supplies, functioning sanitation, maintained roads and safer public spaces.

Treasury has proposed amendments to the Municipal Finance Management Act to improve revenue collection, strengthen financial management and enable earlier intervention in struggling municipalities.

Godongwana said the challenge was to turn fiscal stability into economic growth, jobs and better public services. “Over the next three years, our task is to turn this stability into faster growth and more jobs,” he said.

Pietermaritzburg and Midlands Chamber of Business chief executive Melanie Veness welcomed aspects of the MTBPS but said more was needed to strengthen the economy.

Business welcomes the temporary fuel levy reduction, which will lower logistics, transport and operational input costs in the short term, as well as the increased allocations for municipal services, crime prevention, and capital asset payments, aimed at stabilising the business operating environment.

Veness said further measures to reduce fuel costs should be considered. “We are also encouraged by the maintenance of fiscal discipline, the reduction in debt to GDP and that the government is seeking to avoid major tax hikes in the upcoming budget.

“While we appreciate the work done to date, more needs to be done to stimulate economic growth, to reduce the government wage bill and to address the financial instability across critical state-owned entities, which remain a significant fiscal risk,” she said.