Budget 2026: South Africa Braces for Fuel Levy Increase as Treasury Seeks Revenue
Finance Minister Enoch Godongwana faces the delicate task of balancing fiscal consolidation with economic growth as he prepares to deliver Budget 2026 on 25 February, with fuel levy increases among the revenue measures under consideration.
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The National Treasury stands at a familiar crossroads. Finance Minister Enoch Godongwana will rise in Parliament on 25 February to deliver Budget 2026, armed with spreadsheets that must reconcile competing imperatives: a constrained fiscus, persistent service delivery demands, and an economy still struggling to find its stride. Among the revenue-raising instruments under consideration, fuel levy increases have emerged as a likely component of the fiscal package.
The potential for higher fuel levies comes at a moment when South African households and businesses remain acutely sensitive to transport costs. Fuel prices have long served as a barometer of economic anxiety, touching everything from taxi fares to food prices. Yet Treasury finds itself with limited options. The tax base remains narrow, collection efficiency has plateaued, and the government's debt-service costs continue their inexorable climb, consuming resources that might otherwise flow to infrastructure or social programmes.
The Revenue Imperative
According to The Citizen, Godongwana is preparing to present Budget 2026 with several tax increase mechanisms on the table, reflecting Treasury's ongoing struggle to close the gap between revenue and expenditure. The fuel levy represents a politically fraught but administratively efficient revenue instrument—easy to collect, difficult to evade, and capable of generating substantial sums with relatively small adjustments.
South Africa's General Fuel Levy currently stands at R3.96 per litre for petrol and R3.81 per litre for diesel, with an additional Road Accident Fund levy of R2.18 per litre. Even modest increases translate into billions of rand in additional revenue. A 50-cent increase across both levies, for instance, would generate approximately R8-billion annually, based on the country's fuel consumption patterns. Such figures become irresistible to a Treasury seeking to maintain its commitment to fiscal consolidation while avoiding deeper cuts to already strained public services.
The timing, however, could scarcely be more delicate. Inflation, while moderating, continues to erode purchasing power. The South African Reserve Bank has begun its monetary easing cycle, but interest rates remain elevated by historical standards. Unemployment sits above 30 percent by the expanded definition. Any additional burden on households risks further dampening consumer spending, which accounts for roughly 60 percent of gross domestic product.
Beyond the Pump
Fuel levies rarely travel alone in budget proposals. Treasury typically assembles a portfolio of revenue measures designed to distribute the burden across different segments of the economy. Sin taxes on alcohol and tobacco products represent annual certainties, their increases often exceeding inflation as government balances public health objectives with revenue needs. Adjustments to personal income tax brackets—or the decision not to adjust them fully for inflation, resulting in bracket creep—offer another mechanism for extracting additional revenue without announcing explicit rate increases.
The corporate tax environment presents a more complex picture. South Africa's headline corporate tax rate of 27 percent positions the country in the middle range globally, but effective rates vary widely depending on sector and the availability of incentives. Treasury has shown reluctance to increase the headline rate, mindful of the need to maintain some semblance of competitiveness in attracting investment. Instead, attention has shifted to base-broadening measures: closing loopholes, tightening transfer pricing rules, and scrutinising tax incentive schemes that may have outlived their economic justification.
The wealth tax debate, perennial in South African fiscal discussions, will likely resurface in the budget commentary if not in the budget itself. Proponents argue that the country's extreme inequality demands progressive taxation measures that reach beyond income to accumulated assets. Opponents counter that implementation challenges, capital flight risks, and administrative costs would undermine any theoretical gains. Treasury has historically steered a middle course, incrementally adjusting estate duties and donations tax rather than embracing comprehensive wealth taxation.
The Gordian Knot of Fiscal Policy
Godongwana inherits a fiscal trajectory shaped by decades of decisions and deferred reckonings. The debt-to-GDP ratio, having climbed steadily since the 2008 global financial crisis and accelerated during the COVID-19 pandemic, now hovers around 75 percent. Debt-service costs have become the fastest-growing component of government expenditure, consuming roughly 21 cents of every rand collected in revenue. This leaves progressively less room for the developmental spending that might address the structural constraints on growth.
The Government of National Unity formed after the 2024 elections adds another dimension to budget politics. Coalition dynamics require negotiation and compromise, potentially constraining Treasury's room for manoeuvre on controversial measures. What might have been straightforward in a majority government becomes subject to consultation and accommodation across party lines. This could moderate the most aggressive revenue proposals, but it might also delay necessary adjustments, storing up larger problems for future budgets.
International credit rating agencies watch these budget deliberations with particular attention. South Africa's sovereign credit rating sits just above sub-investment grade with some agencies, hard-won territory after the downgrades of the Zuma years. Maintaining fiscal credibility requires demonstrating both the political will to make difficult decisions and the administrative capacity to implement them effectively. A budget that relies too heavily on optimistic growth assumptions or defers tough choices risks triggering rating actions that would increase borrowing costs and further constrain fiscal space.
The Road Ahead
As 25 February approaches, South Africans await clarity on how the burden of fiscal adjustment will be distributed. The fuel levy question encapsulates the broader challenge: every revenue measure carries economic and political costs, yet the costs of inaction—continued borrowing, deteriorating services, infrastructure decay—compound over time. Godongwana must chart a course between these hazards, knowing that perfect solutions do not exist and that every choice involves trade-offs.
The budget will ultimately be judged not only on its immediate revenue and expenditure proposals but on whether it advances a credible path toward fiscal sustainability while preserving space for growth-enhancing investment. Fuel levies, tax adjustments, and spending reprioritisation are merely instruments. The measure of Budget 2026 will be whether it moves South Africa closer to an economy that generates sufficient opportunity and revenue to meet its citizens' needs without perpetually mortgaging the future. That remains the work not of a single budget, but of sustained commitment across multiple fiscal years and political cycles.