Prof. Joseph Sekhampu, chief director of the NWU Business School

By Prof. Joseph Sekhampu, chief director of the NWU Business School.

The consolidated budget deficit narrows to 4.5% of GDP in 2025/26, declines to 4% in 2026/27, and falls further to 3.1% in 2027/28. Gross debt stabilises at 78.9% of GDP and begins to decline thereafter, while the primary surplus reaches 0.9% of GDP and strengthens over the medium term. On the surface, these figures signal a state regaining control of its balance sheet.

But fiscal stabilisation cannot be mistaken for economic renewal. South Africa remains in a low-growth trap, with real GDP projected to grow by 1.6% in 2026, up from 1.4% in 2025. At these levels, the economy is unable to absorb new entrants into the labour market or revive per capita incomes. The fiscal framework therefore rests on a narrow economic base that remains vulnerable to shocks in energy, logistics, commodity prices and public sector capability.

Debt service costs remain among the fastest-growing expenditure items, even as borrowing moderates. They now absorb more resources than several functional areas combined, including economic development. When the state spends more on servicing past obligations than on building new capabilities, its orientation becomes defensive rather than transformative.

In 2026/27, total spending amounts to R2.67 trillion, with more than 60% of non-interest expenditure funding the social wage. This is a deliberate choice in a society marked by inequality and unemployment. Yet the social wage, while essential, is not an engine of upward mobility without complementary drivers of growth. In a stagnant economy, redistribution becomes maintenance rather than transformation. The budget defends the social floor, but the economy does not yet generate sufficient lift to move households beyond it.

On the revenue side, the speech announced the withdrawal of the previously proposed R20 billion in tax increases. Treasury attributes this decision to stronger revenue performance, while households receive some relief through inflationary adjustments to personal income tax brackets. The VAT registration threshold increases from R1 million to R2.3 million, easing compliance burdens for smaller firms. Consolidation therefore continues to rely more on expenditure restraint and incremental revenue efficiency than on structural economic reform.

The announcement that Treasury intends to introduce a principle-based fiscal anchor in the Medium Term Budget Policy Statement signals a desire for credibility and discipline. Its effectiveness, however, will depend on enforceability. A fiscal anchor can reassure markets and guide future budgeting, but only if it meaningfully constrains discretion when political pressures rise. The real test will lie in its capacity to shape behaviour over the medium term.

Taken as a whole, this budget cannot be characterised as reckless or inattentive. Stabilising debt in a low-growth environment requires difficult trade-offs, and the Treasury has avoided measures that would burden households or stifle small enterprises, while protecting social spending and steering the fiscal trajectory towards sustainability.

However, the central challenge remains unresolved. A fiscally stable state is not the same as a dynamic economy. The country risks settling into a durable low-growth equilibrium in which fiscal prudence becomes the main achievement, while structural reform advances slowly. No amount of budgeting technique can compensate for constraints in energy reliability, logistics performance, regulatory certainty and public sector capability. Until productivity improves and investment conditions strengthen, each budget will continue to manage scarcity rather than unlock potential.

The deeper question is whether South Africa can shift from stabilisation to expansion. This transition demands institutional credibility, policy coherence and a renewed social compact around growth, competitiveness and capability. The next step must be to build the economic environment that allows fiscal policy to move from containment to transformation.