In the latest mid-year budget address, government revised its economic growth projections and reaffirmed its commitment to restoring critical public services, strengthening infrastructure, and ensuring fiscal discipline amid global and domestic challenges.
Slowing Growth and Inflation Risks
Global economic headwinds are dampening South Africa’s outlook. Real GDP growth for 2025 has been revised down to 1.4% from the 1.9% forecast in March. Growth is expected to edge up moderately to 1.6% in 2026 and 1.8% in 2027. However, inflation expectations remain elevated due to rising global trade barriers and continued pressure on interest rates, further complicating recovery efforts.
Domestic Fiscal Adjustments
South Africa’s status as a small, open economy leaves it vulnerable to global financial conditions. Consequently, tax revenue projections have been lowered by R61.9 billion over the next three years, driven by the decision to drop the planned VAT rate increase and weaker economic activity.
To increase revenue, the general fuel levy will be raised for the first time in three years — by 16 cents per litre for petrol and 15 cents per litre for diesel, effective June 4, 2025. Still, this measure alone will not close the fiscal gap, prompting the need for new tax measures in the 2026 Budget aimed at raising R20 billion.
To boost collection, SARS will receive an additional R7.5 billion over the medium term. These funds will support modernization efforts and target illicit trade, debt recovery, and improved enforcement — potentially raising an extra R20–R50 billion annually.
Restoring Critical Services
The budget prioritizes urgent service delivery reforms, especially in health and education. The provincial health sector is allocated R845 billion over three years, with an additional R20.8 billion to hire 800 post-community service doctors and improve essential services. Education receives a R1.04 trillion allocation, with R9.5 billion added to retain and hire teachers. The early childhood development (ECD) subsidy will increase from R17 to R24 per child per day, extending support to 700,000 more children.
A powerful letter from Sarah Stein, a young medical student at UCT, highlighted the dire state of public hospitals — from shortages of gloves and swabs to life-and-death decisions driven by limited ICU beds — underscoring the urgent need for investment.
Social Relief and Employment
The COVID-19 Social Relief of Distress grant has been extended to March 2026, while government explores options to integrate it with job-seeker support as part of broader labor market reforms.
Defence, Elections and Governance
Due to South Africa’s phased withdrawal from the DRC, the Department of Defence’s allocation was adjusted. R3 billion is now allocated for the safe withdrawal of troops and equipment.
R1.4 billion is allocated to support the 2026 local elections, with funds directed to the IEC, SAPS, and SANDF to ensure a safe and democratic process.
Spending Discipline and Efficiency
Government acknowledges the need to do more with less. Treasury’s expenditure reviews found R37.5 billion in potential savings. New reforms aim to eliminate ghost workers, reduce inefficiencies, and shut down underperforming programmes. A Presidential-Treasury committee will now oversee wasteful spending and support whistleblowers.
Division of Revenue
Provinces will receive R2.4 trillion and municipalities R552.7 billion over the medium term. This will help fund bulk water and electricity costs for 11.2 million poor households, continuing the free basic services package worth R610 per month.
Anti-Corruption Progress
The National Prosecuting Authority’s Asset Forfeiture Unit recovered over R5 billion for victims of crime in five years, with an additional R8 billion from state capture-related cases paid into the Criminal Asset Recovery Account.
Infrastructure Investment
Transport: R402 billion, including R93.1 billion for SANRAL and R66.3 billion for PRASA, with R18.2 billion earmarked for rolling stock renewal.
Energy: R219.2 billion for strengthening electricity infrastructure and connecting more renewable projects.
Water and Sanitation: R156.3 billion to improve dams, bulk infrastructure, and service delivery to industry and communities.
Maintenance is prioritized alongside new builds to extend asset lifespans and reduce service disruptions.
Unlocking Private Investment
New PPP regulations will come into effect next month, streamlining processes and encouraging private investment. Guidelines on unsolicited proposals and fiscal risk governance will be published shortly. Transnet and the Department of Transport are engaging markets on private sector participation (PSP) projects.
The Budget Facility for Infrastructure (BFI) will now accept project proposals quarterly. R52.9 billion has been unlocked through the facility so far, and South Africa is preparing to issue its first infrastructure bond in 2025/26.
Conclusion
This budget reflects a strategic balancing act: restoring critical public services, accelerating infrastructure investment, and enforcing spending discipline — all under the shadow of slowing growth and fiscal constraints. Government calls for renewed commitment from all sectors, especially taxpayers and public officials, to turn the tide and build a more prosperous, equitable South Africa.