Nicola Mawson|Published
South Africa's stronger tax collections could provide little lasting relief as the Middle East oil shock, weaker economic growth and rising spending pressures threaten to undermine the country's finances ahead of Wednesday's mini-budget.
Anchor Capital economist Dr Lerato Ntuli has warned that Finance Minister Enoch Godongwana faces a significantly more difficult economic environment than when the February Budget was presented, despite government revenue outperforming expectations.
The Medium-Term Budget Policy Statement (MTBPS), scheduled for 21 October, comes as higher international oil prices feed into transport, production and household costs, while tighter monetary policy adds to the pressure on an already struggling economy.
“The challenge will be to accommodate the economic consequences of the energy shock without undermining progress towards debt stabilisation or compromising the credibility of the fiscal framework,” Ntuli said.
No respite
According to Anchor Capital, the International Monetary Fund expects oil prices to average around $96 a barrel in 2026, approximately 41% higher than in 2025. The IMF also expects global growth to slow to 3.1% this year from 3.5% in 2025, while inflation is forecast to reach 4.7%.
For South Africa, which relies on imported oil, the implications extend beyond higher prices at the pumps.
Ntuli warned that increased transport, logistics and production costs could squeeze company profits, discourage investment and hiring as well as reduce household spending power.
These pressures come as the domestic economy is already losing momentum.
Real gross domestic product contracted by 0.2% in the second quarter of 2026, ending six consecutive quarters of growth. Annual economic growth slowed to 0.9% from 1.9% in the first quarter.
Inflation has also become less favourable, with the headline rate rising to 4.4% in August from 4.3% in July. The South African Reserve Bank raised the repo rate by 25 basis points to 7.25% in September, adding to borrowing costs for households and businesses.
Not all bad news
Yet Treasury enters the MTBPS with some encouraging revenue figures.
Anchor Capital said August's R29 billion fiscal deficit was the smallest recorded for that month in eight years, while the primary budget surplus had strengthened to approximately 1.4% of GDP.
Corporate income tax collections increased by 18.5% year-on-year in August and by more than 20% in the financial year to date, while domestic VAT receipts were also stronger than anticipated, rising by approximately 8% against the February Budget assumption of 4.5%.
However, Ntuli cautioned that the improvement might not be sustainable.
Personal income tax collections have benefited partly from lower-than-expected refunds, despite weaker earnings growth, while VAT receipts have similarly been supported by slower refund payments, Ntuli noted.
Ntuli added that the fuel levy is already showing the consequences of government measures to cushion motorists from higher prices. Collections were approximately 15% lower year-on-year in August, reflecting fuel levy relief and weaker demand, she said.
Under pressure
Meanwhile, spending pressures are building at national and provincial government level, particularly in service-delivery sectors, Ntuli added.
Although debt-service costs have increased more slowly than anticipated, Ntuli warned that prolonged global uncertainty and higher interest rates could reverse that benefit. “Much of the revenue outperformance appears cyclical rather than structural, while expenditure pressures are building,” she said.
Anchor Capital expects Treasury to lower its growth forecasts, acknowledge greater inflation risks and adopt a more cautious fiscal outlook than it presented in February.
Ntuli has called for greater clarity on the government's proposed fiscal anchor, including measurable debt or expenditure targets, enforcement mechanisms and a timeline for legislation.
In addition, Ntuli wants Treasury to explain how any successor to the Social Relief of Distress grant, which is due to expire in March 2027, would be funded. Any measures to cushion households and businesses against higher fuel and living costs should be temporary, targeted and fully funded, she said.
“Temporary supply shocks should not lead to permanent increases in expenditure or weaken the fiscal position.”
Speed up reforms
Other priorities include updated assessments of financial risks at state-owned entities, credible costing for National Health Insurance and protection of infrastructure investment.
Ntuli also called for faster reforms in rail, electricity, regulation and visas to support economic growth.
PSG senior economist Johann Els, meanwhile, expects stronger revenue collections to improve the fiscal outlook, potentially producing a tax windfall of R50 billion or more. He believes the deficit could narrow to around 3.5% of GDP this financial year, compared with the 4% projected in February.
However, Investec chief economist Annabel Bishop has warned that spending is already running ahead of the year-to-date budget benchmark, with a preliminary deficit of R189 billion over the first five months of 2026/27.
Bishop expects the full-year deficit to remain around 4% of GDP, with a risk of reaching 4.1% if expenditure overruns continue.
For Ntuli, the priority is ensuring that temporary revenue gains strengthen the public finances rather than finance commitments the government cannot sustain. “The MTBPS should use the current revenue outperformance to strengthen the public finances rather than create room for unfunded spending commitments,” she said.
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