National Treasury’s presentation to NEDLAC in October 2025, and their broader engagement with civil society during two macro-fiscal workshops in 2025, however, indicate that contrary to the ANC’s commitment, this MTBPS will double down on restrictive and contractionary fiscal policy. In particular, the IEJ is concerned by the ways spending could be curtailed using new instruments. Namely, Treasury’s Targeted and Responsible Savings (TARS) initiative, and proposals for a new fiscal anchor. These are likely to be applied without commensurate measures to unleash increased revenue to scale up programmes with documented success such as public employment programmes, Social Relief of Distress (SRD) grants, and school feeding schemes. This contractionary fiscal stance continues despite the slightly improved macro-fiscal context and recent revenue gains. Unlocking the economy’s potential will require a significant shift in the currently conservative macroeconomic stance.
State capacity
Government needs to take responsibility to address the state’s well-documented incompetence and corruption and act to reverse the erosion in public trust it has suffered as a consequence. Declining public trust undermines the support required for the government to implement more innovative policies, such as utilising pension assets for infrastructure and industrial spending, as proposed by the Department of Trade, Industry and Competition, or harnessing medical aid tax credits to finance the National Health Insurance, as proposed by the Department of Health. A 2023 StatsSA survey found that between 2019/20 to 2022/23, the public’s level of trust declined for 10 out of 15 government institutions.
Simultaneously, however, it is important to highlight the areas where the state has been successful: the South African Revenue Service’s (SARS) debt collection programme, which we return to below, enabled by an increased budget allocation of R7 billion, over the medium term, has already exceeded early expectations.
To restore state capacity Government needs to undertake several key policy measures:
- Reducing outsourcing. First, research by the Public Sector Coordinating Bargaining Council shows the state often pays inflated prices to private-sector contractors for outsourced services. The outsourced workforce faces precarious working conditions, and the recently tabled ‘insourcing bill’ should inspire the government to rethink wholesale outsourcing.
- Better hiring practices. Second, the state must overhaul hiring practices to ensure the employment of a competent bureaucracy and to increase the number of public sector workers. For instance, a 2023 skills audit by the Department of Cooperative Governance and Traditional Affairs found that 300 KwaZulu-Natal councillors had significant difficulties in understanding policy documents. Hospitals, schools, and police stations are critically understaffed, which affects the ability of these frontline facilities to meet the needs of those who are reliant on the state for these services.
- Scaling of under-resourced programmes. Third, the state needs to show support for successful, yet under-resourced initiatives. The SRD grant serves as a stark example. In spite of its low value, means test threshold, and stringent conditions, including bank verification of income, this grant has had a wide impact. Research indicates the SRD grant allows people to search for jobs, put food on the table, and stimulate township and rural economies. Yet, National Treasury has been insistent upon phasing the grant out or radically reducing the number of beneficiaries.
Privatisation and public-private partnerships
State failures in providing basic goods and services to the largely impoverished public have reinforced a view that the private sector should play a greater role in these areas. However, there are multiple reasons why this should be approached with caution. For one, it means that infrastructure constructed or run by the private sector will be privately, and not publicly, owned. People accessing these services will be charged user fees in order for the private sector to recoup costs and earn profits. If the government needs to guarantee private sector debt, this will increase contingent liabilities for the state, leading to the state having to raise financing to subsidise user fees for the poorest households. Both guaranteeing debt and subsidising costs would increase the fiscal burden and be counter to the National Treasury’s current fiscal stance of austerity and debt reduction.
Many proposals for privatisation relate to state-owned enterprises (SOEs). The viability of SOEs should not be determined solely by their profitability. SOEs can provide indispensable, economy-wide benefits even where they are not profit-maximising. However, whether the government can justify fiscal transfers to enable, for example, even loss-making SOEs to remain operational, crucially depends on SOEs demonstrating reliability and affordability for households and businesses, that is, maximising the welfare of society as a whole and providing basic services to the poor. This entails rooting out rent-seeking, corruption, and incompetence, which has been at the heart of failure of SOEs such as Eskom, Denel, and Transnet.
SOEs have been criticised for ‘draining’ the fiscus, but public-private partnerships (PPPs) and similar programmes have also placed additional burden on the public sector balance sheet – as described above. This has, arguably, been without a proportional benefit to the rest of society. A case in point is the Renewable Energy Independent Power Producer Procurement (REIPPP) programme. Through REIPPP, the government is financially backing the generation of power by private enterprises. So far, the REIPPP has delivered only 10% of power consumed. Yet, the REIPPP has R229.5 billion in contingent liabilities – in other words the state would be legally obligated to pay this debt if these projects failed or the private sector defaulted on the loans. Similarly, the Gautrain placed additional debt on the Gauteng provincial government which was then absorbed by the National Treasury. This is in addition to the substantial subsidisation of the price of Gautrain tickets covered by the fiscus.
Most crucially, the (partial or fully) privatised provision of basic goods and services, such as water and infrastructure, discourages access to these services for lower-income households. Private enterprises provide services on the premise of full cost recovery (including profits and dividend distributions). Therefore, essential services become more expensive and are provided only to those who can afford them. South Africa has seen the municipal prices of water and electricity skyrocket over the past decade, with dire consequences for lower-income households.
Improvement in the macro-fiscal environment
The overall macro-fiscal picture has improved somewhat over the last year, providing more room for fiscal manoeuvre:
- Economic growth. Economic growth has slightly improved since the tabling of the 2024 MTBPS. Following a contraction in output in the third quarter of 2024, real GDP growth has been positive, albeit at below 1%, up to the second quarter of 2025. The prospects of economic growth affect the government’s ability to finance its priorities given that revenue collections tend to respond positively to higher GDP growth. The cost of borrowing is also tied to GDP growth.
- Borrowing conditions. In general, borrowing conditions for the government, both in the short term (see Figure 1, blue line) and the long term (see Figure 1, red line), have noticeably improved since the tabling of the 2024 MTBPS and the National Budget in March and May 2025. This is on account of repo rate cuts by the SARB, greater political stability in the period following the National Budget fiasco (February – May 2025), and Trump’s tariff war. Moreover, the risk-premium, that is, the difference between the real interest rate of RSA and USA bonds of the same maturity (red line and orange line), has decreased. The risk-premium rose significantly following the debacle around the rejected budget in February and March 2025, and Trump’s tariff war beginning in April 2025. Since then, demand for bonds – especially from foreign investors – has resurged.
Figure 1: Cost of government borrowing (October 2024 – August 2025)
In sum, unless there are significant internal or external shocks, the South African government faces more favourable borrowing conditions in the upcoming fiscal year, as compared to the previous 12 months.
Revenue
The implementation of objectives such as scaling up public employment programmes, as per the ANC’s 10 Point Plan, will rely on raising revenue. The National Treasury has improved on some elements in this regard by finally acceding to SARS’ demands for more fiscal support. But more pressure is needed – including from civil society, Parliament and government departments – to compel the National Treasury to make a decisive shift away from its excessively restrained fiscal policy framework. We anticipate that, due to the improved economic growth prospects since May 2025, as well as the early success of the SARS debt collection programme, revenue collection projections are likely to be higher over the next three years.
The SARS debt collection programme, enabled by a R7.5 billion increase in its budget allocation in the 2025 May Budget, has performed well. The allocation was made on the expectation that SARS would recover some of the R800 billion it claimed was owed by the public. SARS appears to be meeting expectations early and has collected R32.2 billion in debt in the first four months of the initiative. This is R2.4 billion more than forecast. In addition to the programme, revenue collections are already higher than expected due to a boost in corporate income tax.
In conjunction with increased revenue from the SARS programme, National Treasury must tap into revenue from other sources, some of which have already been used to open up ‘fiscal space’. First, the National Treasury and the SARB should consider the viability of lowering buffers on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). This could allow for larger transfers of the excess gains to the fiscus, as was done in 2024/25 and 2025/26. As of July 2025, the GFECRA surplus stood at R366.4 billion.
Moreover, a reduced repo rate, as well as the appreciation in the price of gold in recent months, should encourage a higher settlement, even if this is limited to the 2026/27 fiscal year to combat adverse movements in the repo rate, the price of gold, and the exchange rate.
Second, there remains ample room to collect revenue from large corporations who deprive the fiscus of at least R50 billion through tax avoidance or evasion, and who have been the beneficiaries of declining income tax rates. Corporate tax rates were lowered in anticipation of this spurring an increase in fixed investment – this has not happened and instead these gains have been hoarded and distributed to shareholders, further increasing wealth inequality, and contributing to a cash hoard of R1,8 trillion by July this year. Lastly, there should be a review of medical aid and retirement-related tax deductions, particularly for individuals earning in excess of R750 000 per annum.
Spending
The unsuccessful proposal to increase VAT earlier in 2025 appeared to signal a shift in fiscal policy, with Treasury accepting the need to increase revenue to fund higher spending, although reluctant to pursue progressive taxation opportunities. While the VAT increase was rightly rejected given its regressive nature, progressive revenue proposals including those listed above show that it is possible to raise revenue for spending in a way that protects the poor. Protecting and expanding the ‘social wage’, that is spending on education, healthcare and social protection, is more urgent than appeasing the wealthy and investors through tax breaks and reductions in spending, in order to achieve primary surpluses.
This need not mean that National Treasury, by expanding spending, would neglect fiscal sustainability. The IEJ has illustrated that a substantial reason the budget has lost credibility, and public finances have endured higher-than-expected deficits, is because National Treasury has failed to resolve or account for spending items that should legitimately form part of their medium-term spending outlook. Unless the new fiscal anchor addresses internal political contestation over particular spending items, it will also be bound to fail as a measure of fiscal stability and sustainability, or as a path to lowering borrowing costs through increased investor confidence. Glaring examples of National Treasury’s failure to adequately budget include: the public sector wage bill, the SRD grant, and fiscal transfers or guarantees for SOEs.
Lastly, the National Treasury is already executing the TARS initiative, hoping to reduce ‘wasteful’ and ‘inefficient’ spending. We support any initiative that improves value for money; however, there is considerable complexity in executing this. First, programmes unable to produce intended outcomes may have failed due to the deployment of an incompetent and incapable bureaucracy, insufficient funding, or external factors related to other policy areas such as water, electricity, and other supporting infrastructure. This is presumably why point four of the ANC’s 10 Point Plan refers to “improving the state’s capacity to manage projects”.
Second, the past decade has seen wholesale spending cuts, driven by National Treasury, which has seen a stagnation in the headcount of public employees. Notably, SARS refers to this under-staffing as one of the main problems underlying their inability to execute their mandate. In sum, the TARS initiative must take into consideration the years of fiscal consolidation, as well as corruption and incompetence, within the state bureaucracy. This would mean that the logical conclusion to under-performing programmes might not be to cut them, but to buttress them. Similarly, high-performing programmes must be scaled up.
What should the MTBPS look like?
Despite a slightly improved macro-fiscal outlook, the National Treasury appears reluctant to use this opportune moment to address pressing and long-term needs. National Treasury has stated that where “higher-than-expected or windfall revenues materialise, such gains will not be used to fund permanent expenditure increases. Instead, any additional revenue will be used to improve fiscal sustainability or address temporary spending needs”. We believe that addressing the socioeconomic and climate crisis would be a better use of these revenues than obtaining higher primary surpluses in the context of stubbornly high unemployment and poverty rates, as well as low levels of economic growth.
| Revenue gains | Spending proposal |
| GDP-induced revenue increase | Increasing MTEF allocations for education, healthcare, and social protection |
| SARS debt collection programme | Increasing SARS MTEF allocation to further tackle tax non-compliance (including illicit financial flows) |
| Government Employees Pension Fund (GEPF) | Supporting industrial development and infrastructure spending |
| Removal of medical aid and retirement-related tax breaks for high-income individuals | Financing the National Health Insurance |
| Wealth taxation | Conversion of SRD grant into UBIG |
| Higher GFECRA settlement | Lower borrowing requirements over MTEF |
| Mineral and petroleum rents | Climate response fund |
Conclusion
Ultimately, the budget and fiscal policy must be consistent with government’s economic plan and constitutional objectives, and should reinforce the ANC’s acknowledgement of the need to align fiscal, monetary, industrial and trade policies. The 2025 MTBPS finds the National Treasury in a better position, relative to the 2024 MTBPS or 2025 National Budgets, to financially support some of the country’s most pressing needs, including those related to employment and income. In the context of a restrictive fiscal policy, and a lack of coordination with other areas of economic policy, however, this will be difficult to achieve. Further, as we have argued in our latest Briefing Note on the ANC’s 10 Point Plan, the shift towards a more accommodating and assertive fiscal policy will rely on effective political contestation by relevant actors inside and outside government.
[ENDS]
For media inquiries, please contact:
Dalli Weyers | dalli.weyers@iej.org.za | 082 460 2093
Amaarah is a Junior Programme Officer in the Rethinking Economics for Africa project. She is currently studying towards her Masters in Applied Development Economics at Wits University. 
Dr James Musonda is the Senior Researcher on the Just Energy Transition at the IEJ. He is also the Principal Investigator for the Just Energy Transition: Localisation, Decent Work, SMMEs, and Sustainable Livelihoods project, covering South Africa, Ghana, and Kenya.
Dr Basani Baloyi is a Co-Programme Director at the IEJ. She is a feminist, development economist and activist. She gained her research experience while working on industrial policy issues in academia, at the Centre For Competition, Regulation and Economic Development (CCRED) and Corporate Strategy and Industrial Development (CSID) Unit.
Dr Andrew Bennie is Senior Researcher in Climate Policy and Food Systems at the IEJ. He has extensive background in academic and civil society research, organising, and activism. Andrew has an MA in Development and Environmental Sociology, and a PhD in Sociology on food politics, the agrarian question, and collective action in South Africa, both from the University of the Witwatersrand.
Juhi holds a Bachelor of Arts degree in International Relations and Sociology from Wits University and an Honours degree in Development Studies from the University of Cape Town. Her current research focus is on social care regimes in the South African context, with a particular focus on state responses to Early Childhood Development and Long-Term Care for older persons during the COVID-19 pandemic. Her other research areas include feminist economics, worlds of work and the care economy.
Bandile Ngidi is the Programme Officer for Rethinking Economics for Africa. Bandile has previously worked at the National Minimum Wage Research Initiative and Oxfam South Africa. He holds a Masters in Development Theory and Policy from Wits University. He joined the IEJ in August 2018. Bandile is currently working on incubating the Rethinking Economics for Africa movement (working with students, academics and broader civil society). 
Liso Mdutyana has a BCom in Philosophy and Economics, an Honours in Applied Development Economics, and a Masters in Applied Development Economics from Wits University. His areas of interest include political economy, labour markets, technology and work, and industrial policy. Through his work Liso aims to show the possibility and necessity of economic development that prioritises human wellbeing for everyone.
Joan Stott holds a Bachelor of Business Science in Economics and a Master’s in Economics from Rhodes University. She brings to the IEJ a wealth of experience in public finance management, policy development, institutional capacity-building, and advancing socioeconomic and fiscal justice.
Siyanda Baduza is a Junior Basic Income Researcher at IEJ. He holds a BSc in Economics and Mathematics, an Honours degree in Applied Development Economics, and is currently completing a Master’s degree in Applied Development Economics at the University of the Witwatersrand. Siyanda’s research focuses on the impacts of social grants on wellbeing, with a particular focus on the gendered dynamics of this impact. His interests include applied micro-economics, policy impact evaluation, labour markets, gender economics, and political economy. He is passionate about translating economic research into impactful policy.
Shikwane is a Junior Programme Officer at IEJ focusing on civil society support and global governance in the G20. He has a background in legal compliance, IT contracting and student activism. He holds degrees in Political Studies and International Relations, as well as an LLB, from the University of the Witwatersrand.
Dr Tsega is a Senior Researcher focusing on Women’s Economic Empowerment within the G20. She examines gender equity in economic policy, with expertise in food systems and small enterprise development. She holds a PhD in development studies from the University of the Western Cape, an MA in Development Economics, and degrees in Development Studies and Economics from UNISA and Addis Ababa University.
Nerissa is a G20 Junior Researcher at IEJ, focusing on advancing civil society priorities within the G20 framework. She bridges data, research, and policy to advance inclusive economic frameworks. She is completing a Master’s in Data Science (e-Science) at the University of the Witwatersrand, and holds Honours and Bachelor’s Degrees in International Relations with distinction. She has worked as a Research Fellow at SAIIA and a Visiting Research Fellow at Ipea in Brazil.
Dr Mzwanele is a Senior Researcher supporting South Africa’s G20 Sherpa with policy research. He holds a PhD in Economics from the University of Birmingham and an MSc from the University of the Witwatersrand. His work covers open macroeconomics, trade, finance, and higher education policy, and he has published widely on inequality, unemployment, household debt and higher education curriculum reform.
Kamal is the Project Lead for IEJ’s G20 work, focusing on sovereign debt and development finance. He holds a BComm (Hons) in Applied Development Economics from the University of the Witwatersrand and an Erasmus Mundus Joint Masters in Economic Policies for the Global Transition. He has worked with SCIS, UNCTAD and co-founded Rethinking Economics for Africa.