By Prof. Busisiwe Mavuso
- IMF reinforces BLSA’s message that OV reforms could deliver up to 9% in real output gains over the medium term – but benefits will take time, and managing public expectations is critical.
- South Africa’s fiscal consolidation is delivering real results: the Budget should confirm the fiscal framework holds, including follow-through on expenditure reviews, SARS funding and a firm no-bailouts position on SOEs.
- The R156bn allocation for the water and sanitation crisis is significant but likely insufficient, and private sector participation must be part of the solution.
- The R1 trillion infrastructure investment commitment is encouraging, and the Budget should direct capital to areas that will provide the biggest return in terms of impact and national imperative.
- Business needs an unambiguous signal that tax increases are off the table – and a vision for how fiscal discipline opens the door to future tax cuts.
The IMF has strongly reinforced the message that business has been consistently conveying: South Africa’s structural reform programme has the potential to deliver meaningful economic growth – as long as the country maintains the pace of reform implementation.
In its recent Article IV consultation, the IMF said the economy stands to gain up to 9% in real output over the medium term, according to Business Day, though this is not its baseline and consensus forecasts for 2028 remain at only 1.8% growth.
It is important not to raise expectations; BLSA re-emphasises that the economic benefits of the reforms will take a long time to kick in fully, a message that is important to convey to the public, particularly in the context of widespread frustration over the lack of job opportunities for the country’s youth. But it is also important to emphasise that the structural reform programme does have the potential to deliver the kind of economic growth that will make a meaningful difference to unemployment and raise standards of living, particularly when the municipal-level reforms start to kick in.
The country is already experiencing numerous benefits delivered by reforms, including the lack of loadshedding and exporters being able to deliver higher volumes of cargo due to rail and port improvements. Aligned with that is the fiscal consolidation story of the past three years that has been hard-won. It took painful decisions and real discipline to reach the point where, for the first time since the 2008 financial crisis, public debt will not grow as a share of GDP.
The results are improved credit ratings, grey-list removal and a strong stock market performance, although geopolitical and trade tensions are major contributors too. But the lower bond yields the country is enjoying can provide real, immediate benefits, not only to government borrowing costs, but also to businesses: cheaper funding is available. BLSA welcomes the fact that President Ramaphosa focused on this in his SONA speech.
The Budget on Wednesday, we hope, will build on these gains. It should provide strong support where needed to drive and accelerate reforms, while on the fiscal front, it should build on its trajectory. Last year there was a primary budget surplus of R68.5bn, debt-service costs came in R4.8bn below the Budget estimate and revenue exceeded expectations by R19.3bn. These were significant achievements in a low-growth environment.
What we want to see from Minister Godongwana is confirmation that the fiscal framework holds, that the expenditure reviews he launched – which identified R37.5bn in potential savings – will translate into real changes in the 2026 MTEF cycle, and that underperforming programmes are indeed being closed, as he promised.
We also want to see follow-through on the R7.5bn additional allocation to SARS, which the minister said could generate between R20bn and R50bn in additional annual revenue, including through targeting illicit trade in tobacco and other sectors. Business Against Crime South Africa has been working closely with government on this, and it remains a priority.
Equally important, the Budget should send a clear signal on state-owned enterprises: there must be no further bailouts. The fiscus cannot continue absorbing the losses of underperforming SOEs. A dispassionate assessment of each entity’s return on investment – using proven tools to measure social impact where relevant – is long overdue, and some tough decisions must follow.
The water and sanitation crisis remains a critical problem and government has recently been highlighting the urgency of the situation. The R156bn allocated to water infrastructure is significant, but analysis suggests it falls well short of what is required to fix the country’s deteriorating water systems. We encourage government to be honest about the gap and to actively develop mechanisms – including private sector participation – to close it.
On infrastructure, there are encouraging developments to build on. The R15bn infrastructure bond announced in the MTBPS was successfully launched, with funds feeding the Budget Facility for Infrastructure. The Budget could provide strong direction by allocating the balance to areas with the biggest impact. The public works programme has long been cited as a vehicle for youth employment, and with the infrastructure investment focus now more tangible, there is a genuine opportunity to connect the two – to create real, skills-building employment.
Business would like the Budget to send an unambiguous signal that the era of tax increases is behind us. National Treasury has previously floated the idea of reducing the corporate tax rate from 27%, and while fiscal constraints make that premature right now, it is the right long-term direction. Getting our tax competitiveness right – for both businesses and consumers – is as important to the investment climate as reliable power and efficient logistics. If we stay on the current fiscal path, the space for tax relief will open. The Budget should articulate that vision.
Finally, BLSA will watch closely what is allocated to health infrastructure. We expect clarity following last week’s announcement that the National Health Insurance implementation would be placed on hold pending the outcome of the Constitutional Court ruling.
South Africa is in a better position today than it has been for a long time. The Budget must reflect that progress – and set out credibly how we build on it. This time last year we endured three iterations of the Budget and narrowly escaped a hike of two percentage points in the VAT rate. By sticking to its fiscal discipline and pushing harder on the reform programme, government can set the foundations for a future cut in the VAT rate and other taxes – which would serve as another powerful trigger for economic growth.
