The 2026-2027 National Budget signals a strategic shift towards private-sector collaboration to overcome the balance sheet constraints of state-owned entities. By prioritising infrastructure investment and maintaining fiscal discipline, the government aims to lift GDP growth toward three percent over the medium term.
The 2026-2027 National Budget presented on 25 February 2026 underlined the importance of SA’s private sector in driving economic growth. For SA’s corporate leadership, this means a greater range of opportunities to participate in different aspects of infrastructural development are likely to open up over the coming years.
The current balance sheet constraints in central government as well as state-owned entities (SOEs) is likely to require a greater reliance on private-public partnerships as a means of lifting fixed investment spending – which has improved over the past 12 months.
The National Treasury envisages that fixed investment spending will grow by 2,4 percent in 2026, improving to 3,3 percent in 2027 before stabilising at 3,9 percent in 2028. Achieving or even exceeding these growth projections would put SA in a far better position to sustain a higher rate of GDP growth.
Reforms are already starting to deliver results
Already, some of SA’s recent economic reform initiatives are gaining traction, resulting in a positive medium-term growth outlook. These reform initiatives include further evidence of fiscal consolidation by the National Treasury, which contributed to S&P upgrading SA’s international credit rating last year while still keeping the country on a positive outlook.
Other reform initiatives include a downward revision to the inflation target from the three to six percent target band to a point target of three percent, with a one percent tolerance band on either side, which appears attainable.
Transnet signing a 25-year partnership with International Container Terminal Services (Philippines-based) to manage the Durban Container Terminal Pier 2; a further 600 companies registering (with Nersa) their intention to invest in renewable energy projects in 2025, with a total output of around 6 000 MW; and Transnet awarding conditional approvals to 11 private train operating companies to operate on its freight rail network across 41 routes and six major corridors.
While SA’s growth rate is forecast to improve only modestly in 2026 and 2027 to a range of around 1.6 percent to two percent, the ongoing implementation of key policy reforms should combine to lift the growth rate to above three percent over the next three-five years.
Predictability in tax
While there was no decrease in the corporate tax rate, the exceptionally large tax receipts over the past two years mean the fiscal authorities were not forced to seek additional tax revenue through substantial tax hikes.
Instead, the minister recognised the financial strain that households were under and provided some relief, announcing only modest tax changes.
The relatively muted tax proposals mean revenue will increase to only R2,13 trillion in 2026/2027 and R2,25 trillion in 2027/2028. This is a combined R52,7 billion below the projections presented in last year’s National Budget.
While Sars was unable to reach its target of collecting an additional R20 billion, the minister decided to withdraw the additional tax proposals, given the potential negative impact on the economy and the overall improving fiscal metrics.
This means that gross tax revenue growth is projected to average 5.8 percent for the three years to 2028/2029. This is achievable, as it implies a tax buoyancy of only 1.1. below the long-term average of 1.2.
However, there are still some risks to the government’s tax collection projections, the biggest being sluggish economic growth projections.
Infrastructure is being prioritised
In 2026/2027, government is budgeting to spend R2,67 trillion, which is a relatively modest rise (3,5 percent) considering that over the past five years government expenditure has increased by an annual average of around 5.9 percent.
The bulk of government’s spending is still allocated to education at R520,3 billion or 19,5 percent of total expenditure, followed by social protection at R446 billion (16,7 percent of expenditure) and health care at R301,3 billion (11,3 percent of expenditure).
There continues to be a focus on infrastructure expenditure in this year’s Budget. Not only is economic development the fastest-growing expenditure function over the medium term (with an average growth of 5,8 percent), but infrastructure investments, focused on water and roads, are being prioritised and allocated R526,3 billion over the medium term.
While this is not nearly enough to make a significant dent in the infrastructure shortfall that the country is facing, it is another step in the right direction.
Conclusion
Overall, the finance minister presented a credible National Budget that aims to further entrench fiscal discipline, while at the same time shifting the government’s expenditure priorities away from consumption and into infrastructural development.
Although several policy options are available to revitalise the South African economy in the medium-term and therefore improve government finances, the range of workable solutions has diminished substantially in the past 10 years, given the destruction of the public sector’s balance sheet and the weakening of key public sector institutions, including many SOEs.
At this stage the most viable policy initiatives would still include: substantially expanding the use of private-public partnerships; extensive deregulation of the business sector in a concerted effort to make it easier to do business and lift business confidence; a turnaround strategy for failing municipalities; a demonstrable focus on restoring good governance (including successful prosecutions); and the ongoing reorganisation of SA’s fragile rail and port capacity.
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