Economists have mostly responded well to Finance Minister Enoch Godongwana’s third budget speech.
Anchor Capital economist Casey Sprake said that National Treasury forecasts average real GDP growth of just 1.7% over the Medium-Term Expenditure Framework (MTEF) period, reflecting persistent structural constraints, subdued investment, and ongoing energy and logistics challenges. “This weak growth outlook has immediate fiscal repercussions: revenue projections have been revised down, further pressured by the politically motivated decision to cancel a planned VAT rate hike. To compensate, the Treasury has leaned heavily on fiscal drag by opting not to adjust personal income tax (PIT) brackets for inflation. This measure alone is expected to generate R49.4 billion over the three-year period. Additional revenue will be drawn from higher excise duties on alcohol and tobacco and a freeze on inflation adjustments to medical tax credits, collectively adding R5.8 billion.”
Sprake added that in lieu of the VAT hike, the government will implement inflationary increases to the general fuel levy – a less politically fraught option that spreads the tax burden more broadly while limiting consumer fallout. “On the expenditure front, the Treasury has made a significant policy pivot by cutting R70 billion in spending over the FY2026–FY2028 period, relative to the March 2025 Budget. This move is fiscally meaningful, as it offsets the lower revenue trajectory and helps stabilise the main budget deficit. In an environment where fiscal credibility is under strain, such restraint is likely to be well received by financial markets. However, overall spending is still projected to be R224 billion higher than a year ago, reflecting expanded commitments to social grants, infrastructure, frontline services, and the 2025 wage agreement.”
An economics professor at the North-West University, Waldo Krugell, said that with all the pressure Minister Godongwana is under, I think he did well to keep some of the new spending but still make some cuts to afford them. “The government remains committed to its fiscal targets, including achieving a primary surplus, stabilising debt at a peak of 77.4% of GDP in 2025/26, and prioritising infrastructure spending.”
Krugell added that the reversal of the VAT increase and a downward revision of the growth forecast from 1.9% to 1.4% have reduced expected revenue. “Treasury has had to cut R53 billion in planned spending over the next three years. This includes no provision for the Covid-19 relief grant beyond 2025, cuts to frontline services, and reduced infrastructure allocations. To partially offset the revenue loss, the only new tax announced is a modest increase in the general fuel levy, expected to raise R3.5 billion in 2025/26.”
Patrick Buthelezi, economist at Sanlam Investments, said that the execution risk for the budget remains very high as many spending pressures require funding, such as closing the gap created by a freeze on PEPFAR support, political party funding leading up to the local government elections, and national social dialogue, among others. “Given the projected economic growth outlook, the pressure on the fiscus can be expected to continue. The finance minister hinted that revenue-raising measures might be introduced in the 2026 budget. The GNU needs to reach consensus on viable revenue-raising proposals, including expenditure cuts.”
NWU Business School economist Prof Raymond Parsons said that Minister Godongwana’s revised third Budget is a pragmatic one given the current circumstances. “As stressed by the Finance Minister, various compromises and trade-offs now inevitably have been necessary to achieve a workable ‘balancing of the books’ which is confidence-building. The commitment to spending reviews is also an essential one. The overall thrust of the third Budget shows a strong pivot in fiscal strategy towards growth and investment, which is where the basic solutions to SA’s public finance challenges ultimately lie.”
Parsons added that the strong emphasis on infrastructural development bodes well for the 3% GDP growth in the medium term envisaged by the (GNU). “The role of Operation Vulindlela and the participation of private sector investment indeed remains indispensable to successful delivery of key infrastructural outcomes, especially in transport, logistics, energy, and water. The latest Budget has therefore provided a combined policy and project foundation on which to build SA’s fiscal sustainability over the longer term.”
Parsons said that with the debt-to-GDP ratio to be stabilised at a higher level of 77%, the margin for error remains small. “There are still future risks to fiscal policy – as highlighted by the higher debt-to-GDP ratio and the warning that the 2027 Budget may have considered new taxes. The good news is that this is now a GNU Budget, which is not only a plus for political stability, but should also ensure its subsequent passage through the various Parliamentary processes.”
Aliya Chikte, project officer at the Alternative Information and Development Centre (AIDC), said that while the overall increases in departmental baselines may suggest a shift away from austerity, they do not signal a meaningful recovery for the public sector. “Years of budget cuts have severely weakened essential services like education and healthcare, leaving more than 100,000 funded posts unfilled and many others removed entirely from departmental organograms. Slight budget adjustments do not ease existing burdens – it simply prevents further deterioration.”
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