Godongwane Delivers Good News: Spends More on Education and Health, Keeps Income Tax Intact

For 2025/26, the gross tax revenue is revised up by R21.3 billion compared to the estimate in the 2025 Budget, Finance Minister Enoch Godongwane during his Budget Speech

In his budget speech today Finance Minister Enoch Godongwane painted a picture of optimism saying the country has reached a turning point in the management of public finances.

Godongwane pointed out that South Africa had overcome the hollowing out of state coffers through state capture, greylisting, Covid-19 and being downgraded to junk status to be where the country is now.

The minister said for the first time in 17 years debt will stabilise and will continue to fall in the coming years. He said the debt deficit has also narrowed significantly and debt-service costs have come down.

The consolidated budget deficit has narrowed to 4.5% of GDP for 2025/26, an improvement from 4.8 per cent that we estimated in the 2025 Budget. The deficit falls to 4% in 2026/27 and 3.1% the year after.

The world has taken notice:

• South Africa has been removed from the FATF grey list;

• We secured our first credit rating upgrade in 16 years;

• And borrowing costs have eased, creating space for growth and development.

“These are signals of restored credibility. Of renewed resilience. And of a nation regaining its footing. The lesson is a simple but powerful one: steady structural reform and responsible public finances are the bedrock of a prosperous and more inclusive South Africa,” he said.

The minister has increased spending for 2026/2027 to R2.67 trillion with education being allocated the lion’s share of the budget at 23.7%.

Basic Education

In terms of consolidated expenditure, spending on education remains the largest component at 23.7% over the medium term, he said.

Basic education receives R22.7 billion for carry-through costs announced in May 2025. Early childhood development receives the majority of these funds.

R9.9 billion supports employee compensation and other pressures in education.

Early childhood development grant receives an additional R12.8 billion over the next three years, expanding service to an additional 300 000 children.

This will also maintain the increased per child, per-day subsidy of R24 introduced in 2025/26.

The increased allocations align the National School Nutrition Programme to food inflation to continue providing meals to over 9.9 million learners in almost 20 000 schools.

Additional allocations to the provincial equitable share include R342 million to progressively equalise Grade R teacher pay, R340 million for the early retirement and voluntary exit programme, and R319 million for the presidential employment initiative.

Health

Godongwane allocated R26 billion to provinces to bolster our HIV/AIDS programme such as the prevention of mother-to-child transmission and the provision of anti-retro virals.

As part of the targeted and responsible savings initiative, provinces will repurpose some of their funding to meet obligations towards PEPFAR. This follows the funding withdrawal by the United States.

R21.3 billion is allocated to the health sector over the medium term for the compensation and employment of doctors, and to make up for shortfalls in goods and services expenditure.

Godongwane said while the world economic growth is projected by 3,3% in 2026, South Africa’s economic growth is projected at 1,6% this year, a slight improvement from 2025’s estimated 1,4%.

Over the medium term, growth is expected to average 1.8 per cent, reaching 2 per cent by 2028.

So optimistic is Godongwane for the future of our fiscas that he announced that the government will withdraw the R20 billion tax increase provisionally included in the 2025 budget.

For 2025/26, the gross tax revenue is revised up by R21.3 billion compared to the estimate in the 2025 Budget.

Higher-than-expected net VAT, corporate income tax and dividends tax collections, improved the in-year outlook.

“The improving fiscal position allows us enough room to withdraw the proposed tax increases, without putting fiscal sustainability or economic activity at risk”.

Godongwane increased taxes on alcohol and cigarettes and also hiked the fuel levy by 6c a litre for diesel and 5c a litre for petrol, while also upping the Road Accident Levy by 7c a litre.

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