South Africa's new Budget reality: what to expect in 2026/27

The delayed, amended, and politically charged tabling of the 2025/26 Budget represented a first in South Africa’s fiscal history. For the first time in the democratic era, a national Budget was postponed as a result of the inability to secure political consensus, thereby revealing the vulnerability of fiscal policymaking within a coalition government (bearing in mind it was the first budget of the coalition government, and what an accident it was indeed.

With focus shifting to the 2026/27 Budget, the central issue is not only what will change, but the extent to which the events of 2025/26 have altered the Treasury’s policy flexibility. I would venture that the lessons learned will have bearing on what we can expect this year.

A Budget that failed before it landed

The 2025/26 Budget was initially based on a conventional consolidation strategy, including a moderate, phased VAT increase, expenditure restraint, and a clear move to revenue administration enhancements. While orthodox in design, this approach proved politically unsustainable.

Public opposition from coalition partners to the VAT proposal led to an unprecedented postponement of the Budget Speech and, ultimately, the complete withdrawal of the VAT increase. Although VAT remained at 15%, this reversal created a substantial medium-term revenue gap, increased the projected deficit, and raised debt metrics. It also indicated that certain tax instruments had become politically untenable.

This episode now establishes the baseline for the development of the 2026/27 Budget.

From ambition to implementability

Whereas the 2025/26 Budget was ambitious and ultimately very fragile, the 2026/27 Budget is anticipated to adopt a deliberately conservative approach.

I anticipate, as would any sane person, that Treasury’s primary concern should be shifted from theoretical optimality to practical implementability. Within the coalition government, fiscal policy must now also withstand parliamentary negotiation, public acceptability, and market reactions. This means that there are limitations to the available tax policy options.

The most significant change is the likely absence of a near-term VAT increase. Although VAT is considered the most efficient revenue instrument in economic theory, it is a potential no-go zone. For 2026/27, VAT is expected to remain a medium-term contingency rather than an immediate policy action.

The rise of the “quiet” tax increases

In the absence of a VAT increase, the ever-increasing revenue pressures are amplified, and the pressure cooker can only turn to the inevitable available options.

The anticipated 2026/27 will focus on a collection of smaller, less conspicuous amendments rather than a single prominent tax change. The logical source of income for is and therefore remains personal income tax bracket creep. Restricting or partially adjusting tax brackets for inflation enables real revenue growth without increases in tax rates.

This mechanism was used implicitly in 2025/26 and is likely to become more prominent in 2026/27.

In addition, the government is expected to rely more extensively on the following measures:

• Excise duties, particularly on alcohol and tobacco, are politically easier to adjust;
• Fuel levies, used tactically depending on inflation and revenue performance, and
• Targeted sectoral adjustments, framed as industrial or competitive measures, remain up for grabs.

Although each measure may appear modest individually, its combined effect could be substantial.

Sars moves to center stage

We expect that the major differences between the two Budgets will be found in administrative measures, and not in the legislative changes.

The failure of the VAT proposal has positioned the South African Revenue Service (Sars) as a central component through increased collection from the existing tax base. In 2026/27, tax compliance enhancements, increased tax audits, collections, and enforcement are expected to play a significantly greater role.

The pragmatic implications for the private sector ( the taxpayers) are not to be underestimated. A Budget that avoids prominent tax increases must still address the fiscal gap.  And logic will tell you that this will be the result of a significant increase in scrutiny, more assertive tax assessments and enforcement, a hard line on penalties for non-compliance, and legal attacks on aggressive tax structures and anti-avoidance arrangements. Consequently, taxpayers will be forced to endure heightened administrative risk rather than legislative changes.

Expenditure: fewer illusions, sharper trade-offs

Regarding expenditure, the 2026/27 Budget is expected to articulate trade-offs more explicitly than its predecessor.

The political backlash following the 2025/26 Budget has diminished tolerance for abstract fiscal commitments. Consequently, the Treasury is likely to emphasise:

• protection of core social spending,
• tighter reprioritisation within departments, and
• a stronger narrative around “value for money” and delivery.

Significant new spending initiatives are improbable. The primary focus will be on protecting the credibility of the expenditure ceiling.

A Budget formed by political reality

The differences between the two Budgets are pronounced.

The 2025/26 Budget tested the perimeters of political consensus and resulted in delays and significant amendments to what was initially tabled. The 2026/27 Budget will likely reflect this experience, adopting a more cautious and more practical approach that relies on multiple smaller adjustments rather than a single comprehensive reform, and will take into account the perspectives of the parties to the coalition government. 

For financial markets, this approach may provide short-term stability. For taxpayers, the fiscal burden is more likely to be experienced incrementally through bracket creep, increased compliance requirements, and indirect taxes, rather than through a single prominent policy announcement.

Where the 2025/26 Budget reflected Treasury’s aspirations, the 2026/27 Budget is expected to focus on what is practically achievable.

In a constrained political environment, fiscal reform persists but assumes a different form. Observers should look beyond the Budget speech and focus on subtler indicators, for example, inflation adjustments, enforcement priorities, and administrative strategies, because these components are likely to reveal the substantive direction of the 2026/27 Budget.

* Oberholzer is an independent CA(SA), MCom (Tax).

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