Finance Minister Enoch Godongwana’s 2026 National Budget Speech, on February 25, is likely to clarify how geopolitical risks, including US tariff pressures, uncertainty around the future of the African Growth and Opportunity Act and South Africa’s participation, and global trade tensions, will be factored into policy planning, while continued progress on structural reforms in energy and logistics is also likely to feature, PwC South Africa anticipates.

The firm’s GDP forecast for the year is 1.2%, with a gradual improvement expected to 1.3% next year and 1.5% in 2028.

Its nominal GDP growth forecast, which includes the effects of inflation, is higher at 5.3% for this year, rising to 5.7% next year and 5.9% in 2028.

While the economy is expected to expand steadily over the medium term, a considerable portion of overall growth continues to reflect pressures rather than a sharp increase in real output, chief economist and sustainability leader Lullu Krugel says.

The firm expects National Treasury to maintain its commitment to fiscal consolidation and provide a credible path to primary surpluses that can stabilise and ultimately reduce the debt ratio.

The Medium-Term Budget Policy Statement (MTBPS) 2025 projected steady fiscal consolidation, with the consolidated budget deficit narrowing from 4.7% of GDP in full-year 2025/26 to 2.9% by full-year 2028/29, and the primary budget surplus improving from 0.9% to 2.5% over the same period.

Strong revenue collections, driven by value-added tax (VAT) and corporate income taxes (CITs), along with a lower interest rate environment, support this positive outlook.

However, risks remain from slower-than-expected economic growth and potential contingent liabilities, which could slow progress, the firm points out.

In light of this, its forecasts anticipate a more gradual deficit reduction, from -4.9% in full-year 2025/26 to -3.3% by full-year 2028/29.

PwC South Africa tax policy leader Kyle Mandy explains that while fiscal consolidation remains on track, it may be slower than Treasury’s expectations, owing to the risks alluded to.

The firm is of the view that spending reallocation should be prioritised, owing to continued economic growth constraints and the revenue outlook.

The US Agency for International Development funding termination creates a funding gap that will require fiscal accommodation or domestic resource mobilisation. The Social Relief Distress grant extension to 2027 adds about R36-billion to R38-billion yearly to baseline expenditure, it points out.

“We predict continued restraint on the public sector wage bill, with the government's early retirement programme targeting 2 200 South African Nation Defence Force members and broader payroll reforms. We expect infrastructure investment to remain a priority, with the R15-billion infrastructure bond issuance proceeding,” Krugel avers.

South Africa’s debt burden remains elevated at 77.9% of GDP, Krugel warns.

“We anticipate the National Treasury will confirm the debt stabilisation achieved in full-year 2025/26, articulate a clear path to reducing the debt ratio towards 70% in the medium term and 60% in the long term, and provide an update on the fiscal anchor policy expected to take effect from April 2027,” she highlights.

TAX REVENUE

In MTBPS 2025, Treasury estimated tax revenues for 2026/27 at R2.14-trillion, or growth of 6.9% on forecast nominal GDP growth of 4.9%.

This includes the R20-billion of unspecified tax increases for 2026/27 pencilled into the budget.

Tax revenues for 2026/27 are expected be about R2.01-trillion, and with an expected tax buoyancy of 1.2 for the year (in the absence of any tax increases or decreases), it is predicted that the tax revenues for 2026/27 would be about R2.13-trillion before any tax changes.

This is slightly lower than what was estimated in MTBPS 2025 (including the pencilled-in tax increases), but it is anticipated that any impact on the fiscal balance will be limited.

Should Treasury proceed with the proposed R20-billion of taxes increase for 2026/27 announced in Budget 2025, PwC expects this would be achieved primarily through fiscal drag. It does not anticipate that Treasury will proceed with the proposed tax increases, or the full extent of these, owing to improved revenue outlook since this Budget.

Mandy says Treasury is unlikely to propose significant VAT increases as it did last year, following the pushback. In the event that is does proceed with the tax increases for 2026/2027, this is not expected from a VAT increase owing to contention. Instead, PwC expects broad administrative refinements to be announced, aimed at strengthening the overall function of the VAT system.

No significant personal tax income increase is expected, as revenues are aligned to MTBPS 2025. A considerable fiscal drag relief is expected in Budget 2026.

PwC does not anticipate changes in the current corporate income tax (CIT) rate of 27%, notwithstanding that the global minimum tax rate is expected to increase CIT revenues over time.

Last year, there was a suggestion that medical tax credits should be removed to fund the National Health Insurance, initially for those in a certain earnings threshold. However, Godongwana came out against this, and PwC does not anticipate a move to remove these credits in the medium term and instead, expects that Budget 2026 would see these increased in line with inflation.

There is a possibility that potential tax proposals for Budget 2026 may include reforms to the ad volarem excise duty on motor vehicles as the local industry looks to preserve jobs and cushions against imports.

An inflationary increase in the general fuel levy is expected. Government may also elect to increase the Road Accident Fund levy in line with inflation to ease the burden on this programme. Inflation increase in excise duties for both alcohol and tobacco are also expected.

The health promotion levy, referred to as the “sugar tax”, is not expected to be fully repealed as called for by industry stakeholders, however, an increase is unlikely, Mandy says.

Budget 2026 may indicate that Treasury will consider the design and implementation for additional carbon tax revenue and recycling measures, with no changes expected to the headline carbon tax rates as these are legislated to the end of 2030.

Budget 2026 is not expected to pronounceon the introduction of a national online gambling tax. There is a proposed 20% tax figure from a draft White Paper, and the public consultation deadline on this has been pushed back.