IN FULL | Enoch Godongwana’s medium-term budget policy statement

Speaker Refilwe Mtshweni-Tsipane Deputy Chairperson of the National Council of Provinces, Les GovenderHis Excellency, President Cyril Ramaphosa, Honourable Deputy President Paul Mashatile, Cabinet Colleagues,Honourable Members,Members of the Executive Councilfor Finance, The Budget CouncilThe BudgetForumGovernor of the South African Reserve Bank, Lesetja Kganyago, Commissioner of the South AfricanRevenue Service, Edward Kieswetter, Chairperson of the Financial and Fiscal Commission, Patience Mbava, Fellow South Africans,We convene at a time when South Africa, like many nations around the world, is grappling with intensifying global competition and mounting economic and political divisions.It is against this fractured landscape that South Africa has been falsely accusedof genocide against its white community and threatened with punitive sanctions based on these falsehoods.Let me thank the many communities here at home and around the world that have rejected the false narratives and the fear, hate and disinformation they represent, and instead chosen to defend the principles of solidarity and equality.The membersof the Afrikaner community who recently came out publicly, refusing to be used as pawns or portrayed as victims, provide us a timely reminder of our responsibility to forge collective prosperity grounded in truth, justice and mutual respect.Madam Speaker, it is in this spirit that I table the followingdocuments before this House:Division of Revenue Amendment BillAdjustments Appropriation BillTaxation Laws Amendment BillTaxAdministration Laws Amendment BillThe Medium-Term BudgetPolicy StatementAs we table this policy statement, we have reason to be optimistic about the future of our country.Our optimism is rootedin the progress we have made in keeping the promises we set out. We This is thanks to collaboration across government departments, law enforcement agencies and the private sector.Exiting the grey list enhances SouthAfrica’s attractiveness to investors and make it easier to do business with us.However, we cannot affordto be complacent. FATF’s next mutual evaluation of South Africa begins in the first half of 2026.We must continueto tackle money laundering and terrorism financing to stay off the grey list.Honourable Members, we also promised to use our presidency of the first African G20 to firmly place Africa on the global agenda.As we approach the final stretchof our presidency, we have successfully concludedmeetings of the G20 finance ministersand central bank governors, brokeringcritical consensus for the continent’s development.We are ready for the Leader’s Summit in Johannesburg just over a week’s time.Despite all of this progress, we must remain realistic about the present and the actions it demands.South Africa’s most pressingchallenge remains accelerating economic growth to create jobs and reduce poverty at the scale required.Drawing lessons from the 2025 budget process, we have engaged extensively to build consensus on how to achieve faster growth and leverage public finances to attract the investment needed to create jobs and improve life for all.Economic OutlookAllowme to now turn to the economicoutlook.Madam Speaker, South Africa’seconomic prospects are shaped not only by domestic factors but also by global developments.Global growth is estimated to slow slightly, to 3.2 per cent in 2025, amid ongoing trade tensions, geopolitical uncertainty, and supply chain disruptions.While the shocks of the unilateral tariffs imposed by the UnitedStates have not materialised as severely as expected, theirdelayed effects coupledwith rising protectionism, pose future risks to global productivity and price stability.Global equity markets have surged, driven by AI-related stocks and central bank rate cuts, but this rally carries the risk of sudden reversals.Given this uncertainty, it is criticalthat we leverage the immenseopportunities presented by the sub-Saharan region.We continue to make progress in the implementation of the Africa Continental Free Trade Agreement to strengthen multilateralism and regional cooperation.Under the South African presidency of the G20, significant strides have been made to strengthen macroeconomic fundamentals of debtorcountries, many of them African,to build a more prosperous region and continent to support faster trade.Domestically, we forecast real GDP growth of 1.2 per cent for 2025, more than double the economic growth in 2024.The growth outlookstrengthens moderately over the mediumterm.Wenow forecast real GDP growthwill average 1.8 per cent between 2026 and 2028.Madam Speaker, the structural reforms we have embarked on, particularly in energy and logistics, will be key to lifting our rate of growth closer to levels demanded by our developmental needs.Ourstrategy for fastergrowth and healthier finances continues to be anchoredon four pillars:The first is maintaining macroeconomic stability.The second is implementing structural reforms.The third is buildingstate capability.And the fourth is supporting growth-enhancing infrastructure.Maintaining Macroeconomic StabilityMadam Speaker,faster economic growthrequires effective macroeconomic management.Fiscal and monetary policies, the twin pillarsof economic governance, must work togetherto lower inflation and borrowing costs for households and firms, while keeping debt-servicing costs affordable.Over the past year, National Treasury and the Reserve Bank have jointly assessed the impact of a lower target on our economy and the fiscal framework.This work has now been concluded and recommends a revision to the target to strengthen the framework and enhance pricestability by betteranchoring inflation expectations and aligning South Africa to international best practice.Today I announce a new inflation target for South Africa of 3 per cent with a 1 percentage point tolerance band.This decision follows agreement between the Governor of the South African Reserve Bank and my consultations with the President and Cabinet.The 1 percentage point band providesflexibility to accommodate any unexpected inflationary shocks.This is in line with South Africa’s approach to inflation targeting, which has always been a flexible one, looking beyond short-run deviations in inflation.The Reserve Bank will pursuethe target on a continuous basis and clearlycommunicate any deviations from the target.Thisnew target immediately replaces the previoustarget range of between 3 and 6 per cent, and will be implemented over the next two years.Over time, the lower target will decreaseinflation expectations and inflation, creatingroom for lower interest rates.Thissupports household spendingand business investment, boosting economic growth,and job creation.The short-term fiscalcosts of a lower target,which include lower nominal GDP andrevenue growth, will make achieving fiscal targets more challenging.Yet the long-termbenefits of takingthis step far outweigh thesecosts.We remain committedto ensuring that our macroeconomic policies serve the best interestsof all South Africans.FISCAL OUTLOOKMadam speaker, our fiscalstrategy aims to achieve the following goals:Anchor fiscal policyby stabilising debt and growingthe primary budgetsurplus;Mobilise and direct more resources towardsinfrastructure investments; andImproving efficiency and effectiveness of spending.I am pleasedto inform the house and the countrythat we are on track to restorefiscal sustainability.Government debt will stabilisein 2025/26, at 77.9 per cent of GDP.This is the first time since the 2008 financial crisis that public debt will not grow as a percentage of GDP.Since 2008, spending has consistently exceeded revenue, driving up debt and debt-service costs.Thesecosts crowded-out spendingon critical servicesand exerted pressure on lending rates across the economy.Butwe are now turning this around.Thisyear, revenues will exceed the budget estimatesby R19.3 billion. We This is a significant reduction from the 7.4 per cent growth anticipated at the time of the 2025 Budget.We will also achieve a primary budget surplus of R68.5 billion– or 0.9 per cent of GDP – this year.Thiswill grow to R224 billionby 2028/29.The overall budget deficit will narrow from 4.5 per cent of GDP in 2025/26 to 2.7 per cent in 2028/29.Madam Speaker, to further ensure long-term sustainability of public finances, the government is considering options for a formal fiscal anchor.We are exploring a principles-led approach that provides for clear parliamentary oversight, stronger reporting on fiscal risks, and transparency on distributional impacts.Earlierthis year, we published a discussion paper on this topic, and consultations with stakeholders and experts are ongoing.Revenue AdjustmentsThe better than estimated tax revenue, of R19.7 billion, is due to stronger household expenditure, which has boosted value-added tax collections, and improvements in corporate tax receipts and dividend tax.Lower than expected VAT refunds also contributed to the improvedrevenue outlook. This higher revenue allows us to bring forward some once-off expenditure.As indicated in the 2025 Budget, an additional R4 billion was allocated to the South African Revenue Services.This allocation was intended in part to strengthen debt collection, and thereby increase revenue collected, by between R20 and R50 billion per year.Wewill continue to monitor SARS’srevenue performance for the remainderof the year.This assessment will inform whether the R20 billion in additional tax increases for the 2026 Budget, as earlier proposed, can be withdrawn.Afinal decision will be announcedin the 2026 Budget.Combating Illicit EconomyHonourable Members, South Africa faces a problem of illicit trade that threatens our economy, endangers consumers, and robs the fiscus of billions in revenue.The growing markets for illicit cigarettes and alcohol pose serious risk to public health and undermine legitimate businesses.Each year, billions of rands in taxes go uncollected, fundsthat could have closed our revenue gap and avoided tax increases entirely.According to SARS, since 2020, government has lost aroundR40 billion in excise revenueto the cigarette black market.The same is true for illicit alcohol and fuel.Government is clamping down on this illegaltrade. In the last six months, SARS suspended three licenses for non-compliant tobacco production.The Financial Intelligence Centre has provided intelligence reports to SARS to assist in investigations of criminal syndicates.Together they have identified illicit markets in tobacco, precious metals, fuel and procurement fraud.Customs officials must fulfil their duty to prevent criminals from dodging taxes and flooding our markets with dangerous products.In-Year AdjustmentsMadam Speaker, the adjustment in revenue means that we can make changes to our spending estimates.For the current year,additional expenditure of R15.8 billionis proposed.Amongst the in-year adjustments is also R2 billion for the rebuilding of Parliament, and R1 billion to the Independent Electoral Commission for the 2026 municipal elections.In addition,the spending announced in the May Budget for the NationalDialogue, as well as its carry through costs, are catered for.These allocations are on top of the additional funding provisions for Education and Health announced in the May Budget.InfrastructureMadam Speaker, President Ramaphosa has consistently spoken of infrastructure as the flywheel of our economy.In line with this vision and advancing our pillar of growth-enhancing infrastructure, we are shifting the composition of spending from consumption to investment. Aapital payments are the fastest growing expenditure item at 7.5 per cent over the medium-term.We are leveraging public resources to mobilise private finance and expertise at scale to strengthen service delivery, improve spending effectiveness and drive higher economic growth.The amendments to triple P regulations took effect on 1 June 2025, and these unlock the potential across spheres of government and streamline approvals for smaller projects.Three weeks ago, new guidelines on unsolicited bids and fiscalcommitments and contingent liabilities were issued and these took effect immediately.The unsolicited bid guideline provides a clear structured pathway for the private sector to submit project ideas to government.It also provides a framework for reporting and managing of fiscal commitments and contingent liabilities arising from PPP projects.Municipal PPP regulations will be amendedby 2026.Leveraging lessons from the Renewable Energy IPP project, to streamline planning and procurement, the Department of Transport’s private-sector participation unit is reviving the passenger transport and logistics sector.Following stronginterest from the freight logistics requests for information, the unit will issue the first rail corridor request for proposal by December 2025, with others following in early 2026.The unit has also issued requestsfor information for investment opportunities in modernising and growing the passenger rail system.The Water Partnerships Office is making progress in preparing non-revenue water and reuse projects across municipalities.These will create a robust pipelinefor the privatesector to co-invest in.We have reconfigured the Budget Facilityfor Infrastructure to run four bid windowsannually instead of just one.Since the reconfiguration, the BFI has received 28 submissions. Nine projects were accepted for detailed analysis.Funding to the tune of R4.1 billion is also allocatedfor disaster reliefto fix schools, pipelines, clinics and substations damaged between last year and this year by flooding in KwaZulu Natal, Mpumalanga, and the Eastern Cape.To raise the fundingfor these BFI projects, a new infrastructure bond will be launched soon to raise a minimum of R15 billion.The bond formspart of our efforts to introduce dedicated financing instruments that can mobilise cheaper financing to support our infrastructure agenda.Government will also contribute to R2 billionto capitalise the Credit GuaranteeVehicle.Initially, the vehicle will support electricity transmission expansion, directlycontributing to our efforts at energy security while also driving decarbonisation.This heralds a new era in PPPs, where privateinvestment in high-voltage transmission lines is enabled.Thisis real progress in our move away from merely fixing the power utilityto securing power to the grid from a range of sources.This is a key and innovative part of infrastructure reforms developed with international partners to de-risk private investment without state guarantees.We are also committed to simplifying the institutional arrangements across the infrastructure ecosystem.The new Infrastructure Finance and Implementation Support Agency will be operational by March 2026.The Agency will provide projectpreparation support to supply the BFI pipeline.It will centralise infrastructure finance functions to systematically crowd-inprivate capital and promote the use of alternative delivery mechanisms.Madam Speaker, municipalities are at the forefront of providing essentialservices.However, many are fraughtwith capacity constraints that hinder their ability to turn allocated budgets into reliable services.It is for these reasonsthat several reformshave been introduced to urgently remedy this untenable situation.We are piloting a utility reform programme to stabilise and professionalise water and electricity businesses in a few municipalities in Mpumalanga.We will use accredited indirect delivery partnerssuch as the DBSA and MISA to provide the infrastructure while building municipal capability to do this on their own.Honourable members, this is how we will ensure that our goal ofpublic sector investment in infrastructure exceeds the R1 trillion mark over the next three years.Medium Term Revenue and ExpenditureMadam Speaker, allow me to also give an overall pictureof our revenue and expenditure. We estimate that tax collections will remain buoyant over the medium term.Despite the higher-than-expected revenue performance in 2025/26, gross revenues are projected to fall short of 2025 Budget estimates, by around R15.7 billion over the next two years.Improved tax revenues will require more sustainable economic growth and further gains in tax compliance and administration.Over the medium-term consolidated spending will increasefrom R2.6 trillionthis year to R2.9 trillion in 2028/29Our commitment to support low-income and vulnerable households through education, health, and social protection remains.The lion’s share of consolidated non-interest spending, approximately 61 per cent over the next three years,continues to fund the basketof government-provided servicesand benefits that reduce the cost of living for our citizens.Madam speaker, this spending is our commitment to the redistribution of income and opportunities in favour of the most vulnerable households in society.Targeted and Responsible Savings (TARS)To build on work on spendingreviews, targeted and responsible savingsare underway.Honourable Members, eliminating waste and inefficiency ingovernment is non-negotiable if we are to maintain public trust that tax money is spent responsibly.The Targeted and Responsible Savings (TARS) initiative systematically identifies duplication, eliminates waste, and reorganizes programmes to deliver value for money.We are implementing medium-term savings of R6.7 billion by closing or scaling down low- priority and underperforming programmes immediately.More than half of this involvesidentifying people who are double-dipping and defrauding the social grants system.Weare also scalingdown the publictransport network grant.Thegrant has failed to meet the objective, and some cities have failed entirely to get the projects off the ground.Anintegrated public transportsystem is essentialto support workingclass communities.We will be reconsidering how to lower the cost of mobilityand rework the institutional framework.Commuter rail is the backbone of our publictransport system.PRASA is making some progress in revitalising our rail system moving, 11.8 million passengers in 2022/23 to 116 million last year.This is only the start of a broader,continuous process to redirect fundsfrom inefficient programmes to pressing national priorities.Other work is being undertaken to realise more savings and efficiencies. We For municipalities, they ensure the continued provision of basic services that include water, refuse removal, sanitation and electricity.The share of nationally raised revenue for provinces and municipalities will, respectively, increase to 42.4 and 9.7 percent over the medium term.The allocations among others, also cater for changes in population growth and to compensate municipalities for increases in bulk service charges related to free basic services.In addition, they also ensure the placing of local government operating capacity on firm grounding.Implementing StructuralReformsMadam Speaker, we are making steady progress on structural reformsthat are a key pillarto our strategy of growing the economy.These structural reforms are crucial to dismantling the binding constraints that have held back our economy.They are also about ensuring that every lever of the state works efficiently and effectively towards the same goal of a stable, growing, competitive and an inclusive economy.Through Operation Vulindlela, now in Phase 2 since it started in 2021, we are building tangible momentum across energy, logistics, water, and now critically, in local government, spatial integration, and digital transformation.Not long ago, our countrywas on the brink of an energycrisis.Unreliable electricity supply threatened to derail our economy and the transformation of our society.I am pleased to say that we have avoided this scenario and instead have begun a march towards reliable supply of energy.Loadshedding has come down significantly.Through focusedand targeted interventions led by Operation Vulindlela, we are transforming the sector.We are building a competitive wholesale market that gives investors certainty. The National Transmission Company has now applied for its Market Operator license.We are investingin new capacity and alternative sources.More than 2,220megawatts of solar,wind and batteryprojects are in development, with 720 megawatts at advanced stages.Eskomhas added 800 megawatts from Kusile Unit 6 and is showingsigns of operational and financial improvements.MadamSpeaker, we also identified dysfunction in the country’slogistics sector as a drag on economic activity and a key area in need of intervention.The movement of freight withinthe country faced serious challenges, resulting in traffic congestion as the transportation of goods shifted from rail.This led to an overalldecline in the volume of goods and exports transited. Reforms in freight logistics are gaining speed.Eleven private trainoperators now have slots on 41 routesacross six corridors.Port efficiency is improving, with vessel waitingtimes down 75 per cent, while container handling is faster.With Durban Pier 2 welcomingprivate operators, we expect to unlock R200 billion in investment over the next five years.These much-needed reforms in logistics will increase the volume of rail freight, reduce port congestion and improve the country’s economic performance.Watersecurity is a key constraint, and we are moving fast to providethe legislative certainty and clarity that will stablise the sector.The Water ServicesAmendment Bill clarifies institutional roles, whilethe National Water Resources Infrastructure Agency launches in April 2026.We are also ensuring that investment in water infrastructure addresses the problemof maintenance and old infrastructure.Madam Speaker, the AfricaWater Investment Summitearlier this year secured US$12 billion in commitments for 80 projects, including 36 in South Africa, demonstrating investor confidence.To attract skills,investment and tourism,we have modernised our visa system by clearing 300,000 backlogs.Our commitment to thesereforms, demonstrates we have and are creatingspace for private sector investment and building infrastructure.I now turn our attention to the pillar of buildingstate capability, from local to national.Building State CapabilityTo address persistent underspending and capacity constraints at the local level, we are reforming the Municipal Infrastructure Grant (MIG).Where municipalities show persistent failure,delivery will shift to an indirectmodel through agencies like MISA and DBSA, coupled with time-bound capability plans aimed at restoring direct funding.Metro trading servicesHonourable members, we are seeing encouraging progress in metro trading servicesreform.Over the 2026 Budget, R19.3 billion has been reallocated towards this reform in line with Councilapproved improvement plans.Financial sustainability is improving throughbetter billing, tightercredit control, cost-reflective tariffs with indigent protection, and co-funding crowding-in concessional and commercial finance.Modernising the Public Service and Payroll IntegrityToday we launch government’s first Procurement PaymentsDashboard using data from the Basic Accounting System (BAS).This dashboard, which is available on the National Treasury eTender website, shows the payments made to suppliers by most national and provincial government departments as captured on our payments system.This represents a massive step forward in procurement transparency. We We have heard calls from all political parties and civil society.National Treasury is working closely with the Department of Public Service Administration and Home Affairs on a data-driven approach that integrates systems across government.We are beginningto see the results of this collaboration.We have already uncovered close to 9,000high-risk cases that have been flagged for further verification.The Early Retirement Programme, which provides financial incentives for employees to exit the public service from October 2025, allows us to rejuvenate the public service.These interventions will deliverlong-term average savingsof around R3.5 billion per year.More importantly, they demonstrate our commitment to fiscal discipline and ensure that every rand spent contributes effectively to growth and service delivery.ConclusionMadam Speaker, the presentation of the Medium-Term Budget Policy Statement sends a clear message: South Africa is choosing growth, stability, and reform.Itrepresents our commitment to an open and transparent budget process.It is intended to empower all stakeholders to contribute to the discussion of the nation’s priorities.It makes transparent the budget frameworkthrough which the Government seeks to achieve the nation’s social and economic development goals.We will use our collective efforts to increase the pace and scale of tackling unemployment and building a stronger economy.Madam Speaker, our presidency of the G20 comes to an end soon.We have demonstrated our ability to successfully host an international and made sure to use our presidency to put Africa’s growth and development concerns firmly on the agenda.The Africa Engagement Framework, which prioritises fiscal, institutional and cost of capital concerns, is among the achievements to be proud of.The Ministerial Declaration on Debt Sustainability is another landmark achievement under South Africa’s G20 presidency.The rotational chairing of the SADC after exit by Madagascar represents another welcome opportunity for our country’s leadership of the region.We intend to use the infrastructure financing lessons obtainedfrom our presidency of the G20 to drive development in the region.Speaker, as I close,allow me to express my deepest gratitude to the Presidentand Deputy President for their counsel, their support and for their leadership.Thank you also to the DeputyMinisters of Financeand the excellent National Treasuryteam led by the Director-General.Theyhave walked this path with me, sharingfreely their insight,expertise and passionfor our country.Thank you to the Commissioner of the South African RevenueService and the Governor of the South African Reserve Bank.Thank you to my Cabinet colleagues, the Ministers’ Committeeon the Budget, and theBudget Council,who share the heavy load of the tough decisionsthat we must make to maintain the sustainability of our public finances.Thank you as well to the Technical Committee on the Budget.To the Parliamentary Committees of Finance, Appropriations and Public Accounts, I express my sincere appreciation.To my wife and family, your support and understanding have given me strength and comfort when I needed it most. It Thank******* ENDS *********
2025-11-12 13:43:58