Economists expect a conservative 2025 budget from Finance Minister Enoch Godongwana later today, with no significant tax hikes beyond indirect levies and only limited support for struggling state-owned enterprises (SOEs) such as Transnet and Eskom. Godongwana, set to present the budget to the National Assembly at 14h00 this afternoon, is expected to maintain fiscal consolidation, prioritising deficit reduction, debt stabilisation, and prudent spending. However, growing pressures from social grants, healthcare, and defence budgets may challenge these efforts.

Economists polled by Business Day expressed hope for realistic revenue forecasts, stronger debt reduction measures, pro-growth policies, and a clear long-term strategy for SOEs, rather than more short-term relief. According to PwC’s predictions, the National Treasury will reaffirm its commitment to reducing the fiscal deficit to prevent the rise of public debt as a percentage of GDP. However, with revenue growth limited and spending demands increasing, Treasury is expected to reallocate existing funds instead of expanding the budget,
raising concerns about potential service delivery impacts. While the Treasury may continue its policy of slowing or freezing public sector wage growth, political resistance, especially ahead of the 2026 elections, could increase. Oxford Economics’ Senior Economist, Jee-A van der Linde, forecasts a larger fiscal gap,
citing expected government overspending and less optimistic revenue projections due to slower economic growth.

The Public Economy Project (PEP) offers a more pessimistic outlook, arguing that rising expenditure pressures, including SOE support, social spending, and wage demands, could derail debt stabilisation efforts, pushing gross loan debt above 80% of GDP by 2026. Economists broadly agree that the 2025 budget will aim
to restore stability without drastic spending cuts or tax increases. Liberty predicts the budget will focus on long-term infrastructure development to create jobs, though it will depend on securing substantial investments and improving revenue collection. Treasury will face challenges in finding innovative ways to boost revenue, as current collections are under pressure.

Treasury has taken a firm stance on SOEs, indicating limited willingness to provide bailouts despite ANC pressure for a Transnet relief package similar to Eskom’s 2023 rescue. The government has already spent over R520 billion on SOE bailouts since 2009, yet many remain financially precarious. The SRD grant, which supports 8.5 million people, also faces pressure, with a court ruling requiring it to be adjusted for inflation. PwC analysts warn that sustainable funding remains a concern, suggesting tax hikes may be necessary if new revenue sources aren’t found.

A R2 billion shortfall in HIV treatment funding, following a freeze in United States Agency for International Development support, poses another risk, with PwC and Oxford Economics warning of disruptions to vital HIV/Aids programmes without urgent intervention. Calls for increased defence funding, spurred by the deaths of South African soldiers in the Democratic Republic of Congo, further strain the budget. 

However, with SOEs, municipalities, and social spending already stretching public finances, it is unclear how much room Treasury has to increase defence spending. 

Main budget balance

Bottom line:

State finances are the driver that underpins much of the reform agenda. Without sound and sustainable financial management, the country will struggle to obtain funding at reasonable rates, which eats into capital that can be used to propel our society forward. This moves beyond just fiscal constraint, but more so
adopting a mindset of spending for growth. This budget is likely to provide some insight into how leaders are thinking about the country’s fiscal strategy and future.

Macroeconomics in Brief

Macroeconomics in brief