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The May 21 budget saw a downwards revision to expenditure and revenue projections, no significant rise in actual borrowings, and the potential for higher revenue collections (not in the projections), with markets reacting positively to the constraint.
The rand, at R17.92/USD before the budget, strengthened slightly to R17.85/USD (with some USD weakness). Borrowing was projected lower for this year, at R6 090.5bn (2025/26) versus the R6 094.2bn proposed in the March budget.
Last year’s debt estimate is essentially unchanged (R5 693.9bn), but the downwards GDP growth revision saw the ratio rise somewhat to 76.9% from 76.1% as National Treasury had forecast 1.1% y/y versus the actual of 0.7% y/y (real for 2024/25).
While a revenue overrun of R8.9bn occurred in 2024/25, National Treasury held on to fiscal rectitude and did not increase revenue plans for the medium-term (2025/26 to 2027/28), instead revising down expected revenue for each year.
The revenue estimates for 2025/26 were revised down to R2.20trn versus R2.22trn in the March 2025 Budget Review, with tax buoyancy estimated lower for this year, at 1.12 versus 1.24 in March on the downwards GDP growth revision.
However, it should be noted that debt collection is expected to increase by R20bn to R50bn per year. “This potential revenue is not included in the revenue estimates. In 2024/25, SARS collected R95 billion in debt” owed by taxpayers.
“(T)he performance of SARS will be monitored by assessing the change in the amount of cash collected from debt… published monthly. If successful, the R20 billion in tax increases to be proposed in the 2026 Budget will be reconsidered.”
How will rating agencies react?
With revenue and expenditure projections revised lower, and genuine potential for upside on revenue, the credit rating agencies are unlikely to react negatively. The potential for tax increases to be rolled back is positive for growth too, lifting markets.
The additional tax revenue proposals of near R20bn a year came mainly from no relief for bracket creep or inflation adjustments on medical tax credits, as expected, while an inflation adjustment to the fuel levy occurred, with sin taxes still rising.
The tax buoyancy ratios for the next two fiscal years, 2026/27 and 2027/28, are revised only very fractionally higher, by 0.07 to 0.04, as National Treasury remains cautious on GDP growth. Broadening the tax base is also key for collections.
The general fuel levy for petrol rises to R4.01c/l, and for diesel to R3.85c/l, from 4th June, while the expanded zero-rating proposed in the March 2025 Budget Review was withdrawn, along with the VAT increases, as announced previously.
The 2024/25 R8.9bn revenue overrun was driven mainly by “a large once-off dividends tax receipt and lower-than-anticipated VAT refunds".
South Africa sees 47.5% of income tax collected from the 533 801 individuals earning over R1m pa.
Economic growth is key
Faster economic growth remains paramount for sustainably higher revenue collection. Improved efficiency and effectiveness of SARS, and broadening the tax base is also key, as is cutting back on wastage, inefficiency and current expenditure.
For the next two years, projected borrowings are lower, at R6 446.8bn vs. March’s R6 463.8bn for 2026/27, but for 2027/28 slightly higher, at R6 819.6bn vs. the R6 814.9bn, although National Treasury GDP forecasts are lower than ours for these years.
Expenditure in the consolidated fiscal framework (also used for the revenue figures above) is planned lower for this year at R2 578.7bn, versus March’s projection of R2 592.3bn, and next year R2 674.5bn, versus March’s projection of R2 703.0bn.
For the remaining year, 2027/28 expenditure is projected at R2 807.5bn versus the prior R2 834.9bn. National Treasury projects higher primary surpluses and lower or the same budget deficits for the main budget in 2026/27 and 2027/28.
The inflation target was not revised lower, but there was sufficient good news from the budget to counteract disappointment. In addition, the US dollar has been weakening as risk aversion drops. SA awaits an anticipated US/SA trade deal.
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