Bold steps taken with Medium-Term Budget Policy Statement are encouraging

Image: Courtesy of FF Plus

The Medium-Term Budget Policy Statement (MTBPS) by Minister of Finance Enoch Godongwana has met several key expectations, despite difficult and constrained circumstances.

One of the most significant developments is the inflation target being adjusted and lowered to 3% — the first change in 25 years.  

This revised inflation target supports lower interest rates, which will provide much-needed relief from the pressure on consumers and the business sector, and stimulate long-term growth.

It enhances competitiveness, reduces the debt burden and promotes stability — but will require strict fiscal discipline to be sustainable.

This does not mean immediate economic revival, but the few positive aspects are emerging like green shoots on the drought-stricken South African fiscal tree.

More good news is that the tax revenue of R17,5 billion is higher than expected. This is a dividend from investment in the South African Revenue Service (SARS) and should be used to actively stimulate economic growth.  

It is unfortunate that the Minister did not commit to whether this could signal better tax prospects, especially after he indicated earlier that up to R20 billion in additional tax would need to be collected next year.

Fiscus revenue for the first six months of the financial year is 9,3% more than a year ago, helping government to stabilise the debt-to-GDP ratio at 77,9%.

Debt remains a problem, though, and it is concerning that the figure of 77,9% is still 0,5% higher than projected in the May budget.

The failure to announce a definitive fiscal anchor to manage expenditure and curb wastefulness is regrettable. A policy proposal on this can now only be finalised in 2026. 

The higher-than-expected revenue does, however, create some leeway for critical infrastructure projects, such as rehabilitation at Transnet, and infrastructure development, including rebuilding the Houses of Parliament.

The fiscal framework, together with the proposed structural reforms, will only succeed if departments and municipalities function properly, deliver services, maintain and expand infrastructure, and cut unnecessary expenditure.

That is beyond the control of the Minister of Finance and National Treasury.

Ultimately, everything should be seen as creating a foundation for economic growth. In this regard, savings and policy are crucial — but so is service delivery at the local level. There will be no investment nor progress without reliable water supply and other services.   

Economic recovery is entirely dependent on strict fiscal discipline, a clear and workable fiscal anchor for 2026, and effective service delivery at all levels. Without these, those few green shoots will quickly wither.