SA Budget Speech 2026: The Stone Keeps Rolling

South Africa has been riding a wave of positive economic momentum with a stronger currency, healthy inflation and lower bond yields. While this has resulted from a combination of supportive local policies and global factors, it has provided a suitable platform to bring about change. One of our biggest risks in maintaining this momentum would be to miss this opportunity by failing to implement favourable economic policy. The budget speech covered many sectors; however, focusing on what is implemented rather than what is promised helps to ease uncertainty and build confidence, making South Africa more investable.

Debt Has Peaked

A core factor behind our ratings upgrade in November 2025 stemmed from an improvement in our primary surplus, which was announced in the Mid-Term Budget Policy Statement. The primary surplus was revised slightly higher at 0.9% for the latest fiscal year, 2025/2026, and is expected to grow to 2.3% by 2028/2029. The primary surplus measures the difference between a government’s tax revenue and its expenditures, excluding any interest payments.

As the primary surplus grows, it should strengthen the national balance sheet and reduce gross debt-to-GDP, which is believed to have peaked at 78.9% and is forecast to decline to 76.5% by 2028/2029. While these appear to be small reductions to a giant number, it is important to note that how we view debt as individuals cannot be directly compared to a country’s debt. A country is an entity that never ceases to exist; it can’t run, and it can’t hide. Stabilising debt at levels higher than 80% for a prolonged period is not problematic if debt repayments are made. A country doesn’t need to pay off its debt; it can always be indebted if the debt is put to good use.

Nonetheless, the government’s willingness to cut spending and repay debt highlights discipline and focus on sustainability. Real economic growth is forecasted to be 1.6% for 2026, reaching 2.0% by 2028, which is underwhelming for an emerging market such as South Africa. Unfortunately, the Zuma era robbed us of utilising debt for growth, and now we are left with the aftermath. A long-term focus has been adopted, starting with foundational reforms that should ultimately translate into a stronger investment landscape.

Tax Relief for Savers, Givers & Homeowners

To encourage saving, an overdue increase in the tax-free savings account (TFSA) annual contributions limit from R36 000 to R46 000 was announced. This change is just above inflation since its last change in 2021. Unfortunately, the lifetime contribution cap of R500 000 remains in place, meaning the earliest investors will reach the limit by 2028/2029.

For the first time in 10 years, the Treasury increased the annual contribution maximum for retirement funds from R350 000 to R430 000 (or 27.5% of taxable income). While this disproportionately benefits a smaller group of higher-earning individuals, it does result in capital flowing back into markets, which is reallocated to productive areas that stimulate growth. The beauty of the financial system.

Capital gains exclusions on primary residences increased from R2 million to R3 million, which is aimed at protecting the middle class. The last time this was adjusted was in 2012, and housing prices have risen substantially since then. The change has been introduced to stop taxing homeowners on inflationary gains and focus on real gains. The exemption on donations tax increased from R100 000 to R150 000, helping parents support their children with deposits for homes, student debt, or even starting businesses.

By allowing wealth to remain in individuals’ hands, the government is betting it will be reinvested in the local economy rather than going to pay down debt if it were taxed.

Small Business Wins

Small businesses form the backbone of any economy, and seeing the sector receive some positive adjustments is reassuring. The VAT registration threshold, which represents the amount of turnover a business must earn to register as a VAT collector, increased from R1million to R2.3 million, marking its first change since 2009. Businesses under the new limit could theoretically free up 15% of their turnover to reinvest in the business.

Capital gains tax is often a consideration when deciding to sell an asset. Sellers may be unwilling to incur tax charges and may hold onto assets for longer periods until a more favourable environment arises for selling. The finance minister announced that the capital gains tax exemption for small business owners aged 55 or older will be raised from R1.8 million to R2.7 million. As tax relief is provided, capital markets open up, and there is likely to be more transaction activity and investment.

These adjustments indicate that the government is willing to forgo tax revenue to cultivate small-business growth in the country. This reflects a long-term stance, as smaller businesses face a lower tax burden, have access to more capital for investment, can reduce unemployment, and contribute to economic growth.

Yet to Be Implemented

There are many areas of the economy that are in dire need of attention, including infrastructure, municipal government, education, healthcare and crime. The budget highlighted these as core areas for improvement, but right now, it is a ‘wait and see’ story. Confidence is a challenge to build and easy to destroy, which means that meaningful, effective execution in each of these sectors is critical. We need to see improvement in local municipality service delivery; we need to see crime numbers come down and education numbers go up before confidence starts to compound.

How Did the Markets React?

Stabilising debt levels, spending discipline and a marginally more positive environment for investors, savers and consumers resulted in the JSE All Share Index rising by 1.26%; 10Y bond yields declined by 0.14%, and the rand strengthened by 0.7% for the day. By no means are these numbers outstanding or fully attributed to the speech itself, but when assessing the bigger picture, our positive confidence streak continues.

Looking Ahead

The key takeaway is the stabilisation in debt: our debt-to-GDP is forecasted to have peaked, and our primary surplus is expected to grow. To achieve economic growth, South Africa needs to be made as investable as possible. There is still a long road ahead, but if we have debt under control and the means to pay it off, then we have proven to investors that we are not as risky an investment. Unstable debt levels create this image.

Debt that becomes due will be refinanced at some of the lowest rates we have seen in at least 10 years, which will snowball into lower interest payments, a lower debt burden, and maybe even lower yields and a stronger currency.

Many policy changes mentioned in the article were made in line with, or still lag, inflation from their last adjustments. However, the past is the past, and when assessing how different these policies were a year ago, there are some substantial changes that will hopefully unlock more capital to be reinvested into our country.