Finance minister Enoch Godongwana delivered what was a highly anticipated 2026 budget speech.
This amid stagnant economic growth, high unemployment levels, and the water crisis in some parts of the country.
The tabling of the budget is important to economists, investors, and broader society.
At the heart of the budget speech is fiscal policy.
Fiscal policy ought to play a role in managing economic cycles, promoting sustained economic growth, and reducing poverty.
Various tools in place to achieve these objectives include government expenditure and taxation (revenue).
These are the most important concepts in any budget speech because they determine a country’s level of indebtedness.
SA’s current debt-to-GDP level is 78.9%.
Policymakers have taken a firm stance to pursue fiscal consolidation to reduce the debt-to-GDP ratio to levels of less than 70% by 2030.
It is of paramount importance to highlight that this is at the expense of expanding economic activity and job creation.
SA’s economy has grown by 0.4% on average in the last five fiscal years.
Economists suggest that economic growth is not a cure for all societal maladies; however, it makes other aims easier to attain and cushions potential conflict among them.
It will be difficult to achieve fiscal consolidation without compromising jobs and growth, because fiscal consolidation requires government expenditure cuts in conjunction with tax increases.
A stagnant economy and job losses further pose harm to the tax base.
Fiscal consolidation is a contractionary fiscal policy because it entails spending cuts and tax increases.
The IMF has proposed the introduction of fiscal rule/s in SA.
The proposal could emerge out of the 2027/2028 budget.
Since we seem to accept the IMF recommendations, it will not come as a surprise if our policymakers adopt such a fiscal policy approach.
My view is that the current economic juncture does not require any fiscal rule or consolidation because economic growth is a matter of urgency.
We have normalised stagnant growth such that we no longer regard it as an anomaly.
One economic analyst opined that “as economists, we have stopped watching economic growth figures, because they are too low”.
Economic growth ought to be perceived as the fundamental issue facing the country.
SA should be adopting policies that promote expanded economic activity.
In the last three years, the SA Reserve Bank has been consistently applying expansionary monetary policy.
In contrast, the National Treasury has taken a contractionary fiscal policy posture.
This is a comprehensive template of no policy coordination between the country’s two most important policy-making hubs.
The two policy-making hubs have different mandates.
Sustainable economic growth is the most common objective of fiscal and monetary policymaking in SA.
It looks as though our policymakers have divorced the pursuit of a developmental state.
While fiscal consolidation is perceived as good and attractive to the markets, it never seeks to tackle the fundamental maladies, including unemployment, poverty, and inequality with which SA is confronted.
This is not to dismiss the public debt situation the country is facing.
Many benefits regarding government finances could eventuate if the National Treasury and the government at large adopted policies in pursuit of economic growth.
A growing economy could lower the debt-to-GDP ratio.
This is because total public debt is measured as a percentage of GDP.
The tax base would increase in a growing economy.
A rise in the tax base would enhance the revenue generated by the government.
Holding other variables constant, an increasing revenue would reduce the budget deficit, and thus the need to go to the capital markets for deficit finance would be reduced.
The National Treasury should be using fiscal policy to create a conducive environment for economic growth.
The government should be working hard to tackle supply-side factors to stabilise the current level of prices.
SA has never experienced a period where inflation was caused by demand side-effects — “too much money chasing too few goods”.
Inflation has always been driven by supply-side factors in SA.
These include fuel prices, electricity tariffs (increases), and frequent power outages (load-shedding).
Thus, the efficacy of applying interest rates to mitigate inflation has opened room for contestation.
Our government ought to tackle these supply-side effects to curb and stabilise inflation.
This could create an environment where the economy could expand.
Effective implementation of Operation Vulindlela should play a crucial role in achieving this.
Godongwana announced that infrastructure expenditure would exceed R1-trillion.
This includes spending by state-owned enterprises (SOEs), provinces, and local municipalities.
This is a great stride to ensure the success of Operation Vulindlela.
It is estimated that the illicit economy constitutes 10% of SA’s GDP.
In addition, the illicit market is growing by about 6% annually.
This is a massive economy operating freely, untaxed and unregulated.
Our government has not developed the laws and regulations required to tax this economy.
Taxing the illicit economy could boost the government’s revenue and fund our interest debt payments.
The revenue generated from this sector could also be channelled to sectors that contribute to economic growth.
There is a gambling economy that remains untaxed and unregulated by the national government.
About R1.5-trillion was wagered (bets placed) during the 2024/2025 financial year in the gambling industry.
It is high time our government pays attention to this industry and imposes levies and regulations applicable in accordance with the developing peers’ standards.
Government expenditure should be channelled to economic sectors with the potential of boosting economic activity and creating job opportunities.
Economic growth should be the priority in policy formulation.
The SA Revenue Service, the Reserve Bank, and National Treasury are institutions at the centre of ensuring the macroeconomic stability required for economic growth.
Sinalo Ngcotsho is a second year master’s student in economics at the University of Fort Hare.
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