By Isaac Matshego

The Medium-Term Budget Policy Statement, the colloquial “Mini Budget”, draws far less attention than the Budget Speech in February each year. However, it is an essential cog in the Treasury’s continuous and transparent budgeting process, an approach that has kept South Africa among the leading nations in budget transparency.  Think of it as the half-time pep talk about how public finances have performed in the first half of the fiscal year (FY, running from April to March) and how the game plan will be adjusted in the second half. Additionally, it lays out the fiscal strategy for the subsequent three years.

This year’s Mini Budget will be presented against the backdrop of a more challenging macroeconomic environment relative to the prevailing conditions at the time of the February 2026 Budget Speech.

Not an easy task for Finance Minister Enoch Godongwana, but we have been here before. Remember that the Russia−Ukraine war broke out a day after the tabling of the 2022 Budget, while the Covid pandemic engulfed the country a few weeks after the 2020 speech. This year, the Middle East war started three days after the annual Budget speech. All these events compelled the Treasury to revise the Budget metrics sharply.

So how do we expect the less favourable macroeconomic backdrop to affect the Treasury’s numbers?

Encouragingly, the domestic economy has been resilient despite pockets of weakness in manufacturing and mining, and higher inflation. Consequently, gross tax revenue, made up mostly of personal and corporate taxes, as well as value-added tax, has risen closely in line with the Budget Statement forecasts.

However, a less favourable economic environment, brought about by the sharp increase in fuel prices and global supply chain disruptions emanating from the Middle East war, poses risks to continued strong growth in the major tax collections.

Talking about taxes, the Treasury must be commended for its efforts to cushion the economy against the effects of the higher fuel prices.

The sharp reduction of the fuel levies between April and August sacrificed revenue exceeding R10 billion. This high figure suggests that chances of further fuel price relief are limited. Anyway, kudos to the Treasury, which often faces accusations of always attempting to squeeze more out of taxpayers. Remember the 2025 VAT increase saga?

Personal income tax collection, which contributes around 35% of total tax revenue, was up by 8.4% in the first five months of this fiscal year, in line with the trend in 2025 and ahead of the full-year 7.5% projected in Budget 2026. Growth in this tax category will likely be dampened by the less supportive economic environment in the second half of the fiscal year. Corporates grappling with rapidly rising operational costs will restrict pay increases, particularly non-regular (bonus) payments, while the boost from withdrawals under the two-pot retirement system will be negligible. Nevertheless, personal taxes will still increase at a rate exceeding inflation for the year.

Corporate taxes continue to be buoyed by the improvements in the local logistics networks – although a lot of work is still to be done. Corporate collections remained solid in the first five months of financial year 2026/27 (FY27 YTD), rising to 20.9% from 9.4% in FY26, as still favourable precious metal prices bolstered mining profits.

However, we expect rising operating costs to hurt corporate profitability, while rising interest rates will contain the growth in financial sector profits.

Overall, we forecast corporate tax collections to slow in the second half of FY27, with growth for the FY in the low double digits, although collections will still exceed the Treasury’s R2.1 trillion estimate for FY27. If there will be another tax revenue overshoot following last year’s R21 billion, it will again be from mining taxes.

Value-added tax (VAT) will likely overshoot the Budget 2026 estimate, mainly boosted by higher inflation. In FY27 YTD, VAT collections were up by 9.1%, with 39% of the FY projection collected. The growth rate is close to for the full FY26. We expect higher inflation and broadly steady consumption to support VAT collections, with growth for FY27 remaining close to 9.3% recorded in FY26 and better than the Treasury’s projected 4.8%.

On the expenditure side, the Treasury will remain committed to expenditure restraint as set out in Budget 2026, with more spending efficiency gains to be targeted under the Targeted and Responsible Savings (TARS) initiative. In Budget 2026, Treasury set a goal of R12 billion under TARS over FY26-29. In FY27 YTD, total spending growth was 4.6%, ahead of 4% over the same period in FY26 and the projected 3.5% for the full FY. We expect growth of 3.7% in FY27, with the higher inflation rate the primary factor. Over FY27–30, we forecast an average annual growth rate of 4.3%, with spending growth constrained by lower inflation from FY28, measures to control the public sector wage bill, and a slower rise in debt service costs.

The spending pressure posed by the public sector wage bill will remain contained, primarily due to the Treasury’s incentive measures to reduce the total bill and the three-year wage agreement signed in February 2025. Under the deal, pay increases for FY27 were set at 4% as the Treasury’s FY27 inflation forecast was 3.4%, below the agreed 4—6% band.

We forecast CPI to average around 3% in FY28, which would fix the FY28 hike at 4%. For FY29 and subsequent years, labour unions will likely push for large increases due to elevated fuel prices, but we do not anticipate increases above 5% per year.

Slower growth in debt service costs − interest payments on existing public debt − will help to contain aggregate expenditure growth. In FY27 YTD, the increase in total interest payments was limited to only 0.5%, well below the 4.5% increase over the same period in FY26 and the 8.3% increase for the whole financial year. We forecast the interest bill to rise by an annual average of 3.5% in FY27–30, slower than the Treasury’s 3.7% for FY27–29. We forecast the interest payments-to-revenue ratio to dip to below 20% by FY30.

Overall, the Treasury will present a Budget update that should strike a good balance between the need to maintain the delivery of services and containing the growth of public debt and the associated debt costs. There will be limited relief to cushion the economy against the pressure from the high fuel prices, but also no indication of new taxes in the coming fiscal years.

Isaac Matshego is a senior economist at Nedbank