Treasury pivots on SA’s turning point

Reserve Bank Governor Lesetja Kganyago told journalists in the media conference that the tailwind from the revision of the inflation target exceeded even the SA Reserve Bank’s (Sarb’s) “most optimistic expectations”. It was the 400 basis point buoyancy – actually a drop in bond yields – that we needed after a year of catching the short end of the tariff stick.

The country had been taken to the brink as the global disruptions ripped apart any idea of predictability in the fiscus. Finance Minister Enoch Godongwana calls the subsequent moment in time – spiralling unemployment and mass deindustrialisation – a “turning point”.

“Faced with this crisis, we chose not to be defined by it. Instead, we turned it into a catalyst for change,” is SA’s Master of Coin’s emboldened response.

There is a plan

“For the first time in 17 years debt will stabilise, and it will continue to fall in the coming years,” the minister said. “The budget deficit has narrowed significantly, and debt-service costs are also falling.”

That’s a steady foundation to build from because it means the Treasury has a little more wriggle room to raise capital to kick-start the economic development.

Godongwana handed the mic to his deputy, Dr David Masondo, to lay down the pillars of the plan in the media conference.

“We will have more decisive action, especially in crisis areas… the provinces are struggling to deal with the failing municipalities, and the government is moving to active intervention,” Masondo said.

At the core of this intervention is a reform of the utility model. Fixing municipalities in the Northern Cape requires a better bedside manner that may smother a high-performing metro like Stellenbosch.

With 63% of municipalities currently in financial distress, the Treasury is introducing performance-linked utility models for water and electricity, and ensuring that revenue collected for specific services is ring-fenced for those services.

“Local government is the sphere where communities experience the state most directly,” Godongwana reiterated in his speech. “Yet many municipalities are in financial and operational distress and therefore unable to deliver services as they should.”

Easing the squeeze

Step two to climbing the ladder out of chaos is looking after the common man – or should it rather be making sure that the biggest contributors to GDP (household consumption) actually have money to contribute to GDP.

To achieve this, Godongwana pulled a magic trick to make the R20-billion in tax increases, pencilled in during the 2025 Budget, magically disappear.

Because the debt trajectory is trending down – projected to stabilise at 78.9% of GDP in 2025/26 before declining to 76.5% by 2028/29 – and tax collections have exceeded expectations, Treasury has found room to let us breathe.

“The improving fiscal position allows us enough room to withdraw the proposed tax increases, without putting fiscal sustainability or economic activity at risk,” Godongwana said.

Inflation (lowered to the target) adjustments to previous austerity measures are a direct injection of relief for battered households and businesses, designed to ease the financial burden that has choked domestic spending.

The scalpel replaces the axe

The age of austerity is replaced by something Treasury has dubbed Targeted and Responsible Savings (Tars).

Rather than bludgeoning the economy with across-the-board budget cuts that cripple essential service delivery, Targeted and Responsible Savings force departments to finesse the purse strings. Ministers must justify their budgets with hard evidence of value rather than coasting on automatic, inflation-linked increases.

So far, this scalpel has excised R12-billion in wasteful or ineffective programmes. Crucially, those funds haven’t vanished into the debt-servicing black hole; they’ve been reallocated to frontline priorities like border (or rather, port of entry) management, the judiciary and passenger rail.

“Every programme and every allocation must demonstrate value, efficiency and accountability,” the minister warned. “Targeted and Responsible Savings are not a once-off initiative. They will be an ongoing and entrenched part of the Budget process going forward to weed out inefficiencies and low-performing programmes.”

Back in our spending era

With debt stabilising and waste being trimmed, the final pillar of the Treasury’s strategy is growth. Here, the pivot is clear: a deliberate shift away from consumption spending – historically bloated by the public service wage bill – toward capital investment.

Over the medium-term expenditure framework, public-sector infrastructure spending is set to clock in at R1.07-trillion.

In true GNU fashion, the ministry is acknowledging that the state cannot build this alone, and the government is pulling the public-private partnerships lever and firing up the furnace of the newly formed Infrastructure Finance and Implementation Support Agency. The goal is to aggressively crowd in private-sector capital and engineering expertise.

“The government is shifting the composition of spending towards growth-enhancing public infrastructure,” Godongwana declared, stamping a seal on what is definitively a post-crisis Budget.

Structural reforms

A growth strategy published by the National Treasury in 2019 targeted the five areas of electricity, transport, water, telecoms and visas as strategic points to drive growth by 2.3 percentage points over 10 years. Operation Vulindlela is the programme driving this strategy and the assessment above was shared by National Treasury in the Budget review documents.

Commenting on Operation Vulindlela in his speech, Godongwana said: “In terms of energy reforms, we are stabilising electricity supply and building a competitive, reliable energy market. Regulatory reforms in this sector have unlocked significant private investment, accelerating generation capacity and driving the transition towards cleaner, renewable power. In logistics, we are dismantling bottlenecks in rail and ports that have throttled exports and raised the cost of doing business. Our intention is to bolster public-private investment in rail operations while retaining state ownership of rail infrastructure.”

This year’s drama-free address had a deliberate momentum. By committing to a clear reform agenda, the Treasury is shifting its posture from survival to proactive response to the nation’s needs. DM