What the Country Needs

Authors:

Leon Louw, Freedom Foundation CEO

Garth Zietzmann, Consulting Statistician.

Finance Minister Enoch Godongwana tables his 2026 Medium-term Budget Statement (MTBS) in Parliament on Wednesday 21 October. The following covers what Freedom Foundation CEO, Leon Louw, and statistics consultant, Garth Zietsman, want to see in the 2026 MTBS.

The fiscal outlook

Given far-reaching international developments such as the Iran war and the strained relationship with America, most expect a worsening debt-finance outlook and maybe a pause on the deficit and debt-reduction compact. The opposite might be true.

There might be a tax windfall of R50-70 billion in income tax, VAT and high precious metal prices. If so, the primary budget surplus is likely to increase, and the budget deficit should be lower than expected in February. The Minister might introduce guidelines that tie future administrations to strict debt boundaries. That could result in improved ratings from international agencies followed by reduced borrowing costs. This would facilitate moving debt towards a more sustainable path.

Tax rates and structures are unlikely to change much. The commitment to infrastructure development and social grants are likely to be sustained.  Whether the Minister is likely to sustain recent tax relief measures such as the fuel levy relief is unclear. Either way, inflation targets must be tighter, and unemployment, negative per capita growth and the prospect of political instability following the local elections complicate matters.

Government consumption

The biggest question is whether the government will honour its commitment to reduced government consumption spending and cutting underperforming projects. Will the MTBS clarify what, if anything, has happened since the February Budget?

It does not bode well for responsible budgeting when voters exceed taxpayers by several multiples. Resisting the clamour for handouts that cannot be funded requires wisdom, moral courage and discipline rarely seen in a politician. The Treasury is to be commended for its role in maintaining South Africa’s fiscal stability. It could be argued that the government has been good at debt management and not driving up deficits, barring two international disasters, the 2008 financial crisis and the COVID-19 pandemic. During the early post-apartheid years, there were several budget surpluses, which were not merely primary as now.

Recent improved revenue numbers are unlikely to be sustained because of poor economic growth due to tenacious counterproductive policies.

Reckless tax-and-spend policies have increased the proportion of the economy consumed by the government from 30.9% to 35.5% between 1994 and 2025.

The Tax burden

The steady increase in the tax burden and a tiny tax base have driven South Africa beyond the peak of the famous Laffer curve. Economist Arthur Laffer pointed out that there are two tax rates at which a government gets no revenue: zero and 100%. Between the two, there is a peak at which a government gets the maximum possible. Above that, higher rates yield declining revenue. We have passed that peak, so that increased tax rates yield declining revenue

In his February Budget Speech, the Minister implied that total tax burden (called “Tax Freedom Day”) would be  2 to 3 days later than it is now, in other words, the government would consume even more than it does now.

Either way, he should keep central government spending below the current level of tax revenue, which is 28.5% of the economy (GDP). A major gesture towards responsible financial policies would be for him to continue refusing to fund to the National Health Insurance (NHI) fantasy.

Taxes in all forms –  VAT, company and personal income tax, wealth tax, import and excise duties, BBEEE, affirmative action and the like – already exceed plausible limits. Higher taxes and levels of regulation are likely to trigger such reactions: emigration of wealth-creators, business failures, tax evasion and even a tax strike. This would exacerbate our Laffer Curve decline, so that funds for redistribution disappear.

The most powerful message that the Minister can give is a meaningful promise of radically improved policies and governance in order to achieve real prosperity.

Economic growth

Since 1994 the South African government has sought to improve the lives of black South Africans primarily through redistribution of other people’s wealth, which benefited mostly politically connected elites. This contrasts with Singapore under Lee Kuan Yew. As Prime Minister from 1959 to 1990, he kept his party’s majority in a multi-ethnic, multi-racial society for over three decades and took his country from poverty to one of the world’s richest. He did it, not through redistribution but through free market-driven economic growth.

Redistribution misallocates resources from more to less productive uses, thus retarding economic growth. It gives favoured recipients a temporary boost at the expense of their own long-term prospects. What we should learn from Singapore is how to shift from stagnating redistribution to prosperity.

In his MTBS the Minister has an opportunity to reaffirm and expand recent growth-promoting moves such as opening energy, rail and ports to private competition. He could, as promised, dispose of failed state-owned enterprises (SOEs). Many cost the country vast sums whilst yielding little value.

Governance

Governance has deteriorated steadily after an initial few promising years following 1994. Service delivery is disastrous in many municipalities, and crime and corruption remain among the world’s most disastrous levels despite repeated promises to tackle them. We have the world’s highest official sustained and deteriorating unemployment rate, which includes three-quarters of all young black women.

The government should resurrect the promise of zero-based budgeting rather than simply accepting last year’s baseline and implement the proposed online real-time dashboard tracking of all government spending. The Minister should report on and reaffirm promised reform of municipal services such as water and electricity, under which revenue collected for these services must be paid to suppliers or reinvested in them.

Election candidates could be required to disclose their qualifications (or lack of them) to voters. Accountability should be assessed more often than in once-a-year audits, and failure should have severe consequences.

Efficiency

The Minister should announce a serious drive to improve efficiency, including digitisation, cutting underperforming projects, outsourcing to private enterprise, and cost-benefit analysis of all projects. The requirement of Socio-Economic Impact Assessments (SEIAs) for all proposed laws and policies should be rigorously enforced and undertaken. A long-term programme should be announced for the application of SEIAs) to all existing laws and policies.

Devolution

South Africa is a federation, yet few seem to realise it; lower-tier, and there is a national uniformity mindset. The Minister should implement fiscal devolution so that there can be competing regional and local tax rates, as well as all concurrent and exclusive lower-tier functions to be taken over so that South Africa can, like America, China and India, have one country, many systems. One of the great benefits would be the “demonstration effect” whereby best policies can be identified.

Special economic zones (SEZs)

He promised to tighten the qualifying rules for SEZ tax incentives instead of ensuring something truly “special” about “special” zones, such as being tax- and regulation-free, free of the need for work or import permits, entirely “offshore” for export processing and so on.

Size of government

A reduction of our bloated government has been promised often, but little has changed. Compared with our 32 ministers with 43 Deputies, Germany has 17, Japan 20, the UK 24 and the US 26 ministers. Slashing the number of ministers by 50% would not only reduce resource wastage, but also send the kind of positive signal that the country needs desperately.

Exchange control

It is long overdue for him to abolish the apartheid relic of foreign exchange (forex) control. Yet this darkest-era dinosaur remains a monstrous disincentive for investors and how people may use their own money. Instead of abolition, he announced a shift towards modernised “capital flow management” with slightly higher individual allowances. He should seize the opportunity to bury the dinosaur along with other oppressive financial regulation.

Ease of doing business

Simultaneously, he should commit the country to achieving ever-higher World Bank “ease of doing business” scores.

In every Budget and MTBS Min Godongwana has a new opportunity to make a real difference. He can and should announce timetables for concrete reforms that will ensure high growth and prosperity within months.