Economists anticipate a conservative 2025 budget from finance minister Enoch Godongwana next week, with no major tax hikes beyond indirect levies and only limited support for struggling state-owned enterprises Transnet and Eskom.
The economists polled by Business Day said they hope for realistic revenue forecasts, a stronger drive to reduce debt, pro-growth policies and a clear, long-term strategy for struggling state-owned entities (SOEs) — instead of another round of short-term relief.
Godongwana, who is expected to present his budget to the National Assembly on Wednesday next week (February 19), is expected to stay the course on fiscal consolidation, prioritising deficit reduction, debt stabilisation and prudent spending. However, mounting pressure from social grants, healthcare and defence budgets could test these efforts.
With revenue growth constrained and spending demands rising, Treasury is likely to reallocate existing funds rather than expand the budget — an approach that raised concerns about potential impacts on service delivery.
Additionally, while the Treasury may continue its recent policy of freezing or slowing public sector wage growth, political resistance to cuts in salaries or welfare programmes could intensify, especially with the 2026 elections on the horizon.
Johann Els, group chief economist at Old Mutual, said the budget will reinforce fiscal discipline and could pave the way for credit rating upgrades within 12 to 18 months.
“I think we need, and we’ll see, a fiscally conservative budget — enough so that we can see more positive direction in terms of credit ratings.”
However, Jee-A van der Linde, a senior economist at Oxford Economics, and PwC analysts warn in their budget predictions that Treasury’s deficit targets may be overly optimistic, citing slow economic growth and weak tax revenue.
“We forecast an even larger fiscal gap. We think the government will overrun on its expenditure targets, and our revenue projections are less optimistic than official numbers due to expectations of slightly softer comparative economic growth,” Van der Linde said.
Economics think-tank the Public Economy Project (PEP) took a more pessimistic view. They argued that mounting expenditure pressures — including rising support for SOEs, social spending commitments and wage bill demands — make it difficult to sustain austerity measures in the medium term.
According to PEP, these pressures could derail debt stabilisation efforts, pushing gross loan debt beyond 80% of GDP by 2026.
The economists broadly agreed that the 2025 budget will be aimed at restoring stability without sharp spending cuts or tax hikes.
Even with additional support, municipalities continue to face serious liquidity challenges.
— PWC budget predictions report
Economists agreed that expected GDP growth of 1%-1.9% was too weak to generate the revenue needed to meet budget targets.
PwC warned against over-optimistic tax collection targets, citing risks of potential shortfalls.
Els expected upside potential in improved energy supply and fiscal management, while Oscar Siziba, head of coverage for business banking at Standard Bank SA, pointed to small and medium enterprises (SMEs), trade and digital transformation as key to unlocking growth opportunities.
“SA’s hosting of the 2025 Group of 20 (G20) and Business 20 (B20) summits presents a major opportunity to attract investment,” said Els.
However, Van der Linde warned that economic growth was still too low and current debt levels too high “to warrant credit rating upgrades at this stage”.
The 2025 budget will need to strike a balance between fiscal discipline and policies that stimulate investment, innovation and trade to avoid another year of revenue shortfalls.
Economists from PwC and PEP agreed that while no major income tax hikes were expected in the 2025 budget, Treasury was likely to raise indirect taxes to shore up revenue.
Kyle Mandy, PwC’s tax policy leader, said Treasury will target fuel levies and sin taxes, which are politically safer than income tax hikes, especially before the 2026 elections.
“An inflationary increase in the fuel levy is expected in budget 2025,” PwC said in its budget forecast report presented to journalists this week.
Sin taxes are expected to increase above inflation, continuing Treasury’s dual aim of raising revenue and curbing consumption, according to PwC.
However, corporate tax revenues remain vulnerable, with commodity price drops and logistics issues hurting profits.
PwC warned that ongoing economic headwinds, including weaker commodity prices and logistical constraints, could reduce corporate tax inflows.
On VAT, President Cyril Ramaphosa has floated expanding zero-rated items to ease the cost of living, but PwC warned this could shrink VAT revenue unless offset elsewhere.
Despite these potential measures, PEP analysts cautioned that high expenditure pressures could outpace revenue gains, risking fiscal slippage.
Economic growth is still too low and current debt levels too high to warrant credit rating upgrades at this stage.
— Jee-A van der Linde, Oxford Economics
Treasury has taken a strict conditional approach to state-owned enterprises (SOEs), signalling limited appetite for bailouts despite pressure from the ANC to provide Transnet with a relief package similar to Eskom’s 2023 rescue.
Godongwana has said that any further support would be carefully managed — that SOEs must demonstrate financial discipline and operational improvement before receiving state aid.
Since 2009, the government has spent more than R520bn on SOE bailouts, yet many remain in precarious financial positions.
Transnet, which faces a R50bn infrastructure backlog, is under mounting pressure, with its debt projected to reach R151bn in 2025. In its report, PwC mentioned a R90bn infrastructure upgrade need.
Municipal finances present another major risk. According to PwC, only 14 of the 72 municipalities in Treasury’s recovery programme are meeting their financial commitments.
“This means that even with additional support, municipalities continue to face serious liquidity challenges, with the auditor-general declaring that many of them are not going concerns from a financial perspective. The budget speech is expected to be frank about the shortcomings of these programmes.”
The economists warned that the new budget must balance fiscal discipline with rising social spending needs, particularly for social grants and healthcare, while avoiding costly new commitments.
A key pressure point was the social relief of distress (SRD) grant, which supports 8.5-million people. After a North Gauteng High Court ruling, Treasury must adjust the grant for inflation. But PwC analysts cautioned that sustainable funding remain a concern, warning that tax hikes may be necessary if new revenue sources are not found.
Another strain is a R2bn shortfall in HIV treatment funding after a temporary freeze in USAID support. PwC and Oxford Economics warned that without urgent intervention, essential HIV/Aids programmes could be disrupted, endangering public health.
The deaths of SA soldiers in the DRC have sparked calls for increased funding for the defence force. However, with SOEs, municipalities and social spending already straining public finances, it is unclear how much room Treasury has to expand the defence budget.
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