The budget has been discussed and analysed at length over the past week. The consensus seems to be that it is a better budget, but still not good enough.
This assessment comes from the obvious aspects covered in the budget. However, there are also aspects hidden in plain sight. This description reminds me of Jeffrey Archer’s novel of the same name. In the Archer novel, being hidden in plain sight implies considerable risk.
Luckily this budget does not only hide some risks in plain sight. Some positive developments also lack sufficient emphasis.
The first risk hidden in plain sight is the economic growth projection of 1.6% for 2026. The growth projections of the National Treasury have been notoriously wrong in recent years. Lower economic growth will reduce tax revenue and distort ratios based on GDP — for instance, the deficit before borrowing of 4% of GDP for the 2026/2027 fiscal year.
This raises the second risk, namely the ratio of government debt to GDP. South Africans have been promised a decline in this ratio in numerous successive fiscal years in the past, but with no success to date. The minister made the same promise in the latest budget, but again with a declining trend only from next year.
This declining ratio is nothing but a promise and clearly not a decline in government debt, as some commentators have suggested. Government debt is budgeted to increase by 13.5% from R6.1-trillion in the 2025/2026 fiscal year to R6.9-trillion in the 2028/2029 fiscal year.
A third risk is the South African tax base. The budget fiascos of 2025 have shown that the VAT rate cannot be increased. At the same time, company tax and personal income tax have reached their upper limits. Further rate increases might actually raise less revenue, rather than more, as higher taxes discourage people from working.
Though all consumers pay VAT and profitable companies pay company tax, South Africa has a very small personal income tax base. Only about 8.3-million people earn income above the annual tax threshold of R99,000.
Another positive development … is the relaxation of exchange control
At the high end of the tax scale, taxpayers are really squeezed. When the maximum marginal tax rate of 45% was introduced in March 2017, it was set for taxable income above R1.5m a year. Adjusted for inflation over the ensuing period, this income level amounts to about R2.19m. For the 2026/2027 tax year, the marginal tax rate of 45% will be reached at an income level of about R1.88m. In real terms, the threshold is about 16% lower than in the 2017/2018 tax year, with a concomitant higher tax burden.
The budget tables show that 645,176 individual taxpayers with taxable income exceeding R1m will pay R421.9bn in taxes in the 2026/2027 fiscal year. This is 49.9% of taxes paid by individuals and 19.8% of all tax revenue to be collected by the government in the 2026/2027 fiscal year.
These people should each get an annual personal “Thank you” letter from the South African Revenue Service. They carry an extremely heavy burden and there is no room for an increased tax on this group.
The fourth risk is South Africa’s support of its neighbouring countries. The transfer payment in terms of the Southern African Customs Union agreement to Botswana, Eswatini, Lesotho and Namibia amounts to R78.4bn. This payment includes a development aid component, not disclosed in the budget figures, amounting to at least R4bn. The question must be asked whether South Africa can still afford this generosity to its neighbours.
For many years, South Africans suffered stealth taxation. Taxes were raised, for instance by means of fiscal drag, without the announcement of higher tax rates. Fiscal drag is when salaries rise with inflation but the tax tables are not adjusted accordingly. However, the adjustments in tax tables announced by the minister will remove some of the impact of fiscal drag in the 2026/2027 fiscal year.
We now have stealth privatisation as a positive development. The private sector’s role in the economy increases as the inability of the government to deliver becomes more obvious. This is visible in matters such as rail operations, water infrastructure and the minister’s remark that public institutions should view public-private partnerships as a viable alternative delivery method.
Another positive development hidden in plain sight is the relaxation of exchange control. This is aligned to the government’s stated policy objective, but relaxation unfortunately stalled in recent years.
Relaxing exchange control shows that the government has confidence in its fiscal and monetary policies without the support of exchange control. This policy confidence is the most positive message hidden in plain sight in the budget.
Rossouw is an honorary professor at Wits Business School and economist at Altitude Wealth
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