In brief
- On 22 May 2025, South Africa’s Finance Minister Enock Godongwana delivered the third FY26 Budget Speech. The latest iteration of the medium-term (FY26 – FY28) budget fiscal framework followed the suspension by the High Court of the proposed 0.5% VAT hike from 1 May 2025, and the reversal of this tax proposal by the National Treasury paving way for the budget reading in May 2025.
- The FY26 budget statement was welcomed by markets as it managed to balance the narrowing fiscal space propelled by the revenue hole and fragile macroeconomic backdrop, by lowering the aggregate discretionary spending over the medium-term. In our assessment, this restored the budget credibility and patched the tension that was boiling within the Government of National Unity constituent parties in the previous 2025 budget plans.
- Given the reversal of the proposed 0.5% VAT hike during FY26 budget year, the fiscal authorities also shelved off the widening of the zero-rate VAT regime on select commodities. Furthermore, the National Treasury proposes the first fuel levy increment in three years and effective from 4 June 2025.
- The budget statement also indicated additional revenue of ZAR 20.0bn to be effective in FY27 budget year. Contingent on the ability of South African Revenue Services (SARS) to generate an annual ZAR 35.0bn from outstanding tax debts, the fiscal authorities will shelve this planned tax raising measures targeted for the next fiscal year.
- The revised budget over the medium term has a lower additional spending of ZAR 180.1bn for FY26 – FY28 period compared to ZAR 232.6bn baked in the March 2025 budget statement, with reduction from ZAR 102.4bn to ZAR 87.3bn in FY26 budget. Provisional allocation for frontline services was reduced by ZAR 10.0bn to ZAR 12.2bn highlighting the need of better accommodating the lower revised budget.
- Gross Financing requirement in FY26 is projected at ZAR 588.3bn from ZAR 398.2bn in FY25, largely on higher domestic long-term bond redemptions and lower Gold and Foreign Exchange Contingency Reserve Account (GFECRA) net settlement.
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