The third iteration of SA’s national budget takes centre stage this week, with finance minister Enoch Godongwana set to table the revised budget on Wednesday.
Budget 3.0 is likely to present a downward revision to economic growth and revenue forecasts, a modest increase in borrowing and a slightly wider budget deficit.
Annabel Bishop, chief economist at Investec, noted that the Treasury was likely to avoid raising personal or corporate taxes after the rejection of the VAT hike.
“An increase in the fuel tax levy is likely to be used to cover part of the funding gap while National Treasury has also recognised the need to bolster tax collections at Sars and has increased the institution’s funding,” she said.
The borrowing estimates of the Treasury’s March budget suggested that the gross debt-to-GDP ratio would peak at 76.2% in 2025/26, slightly higher than the February estimate. The budget deficit was revised to minus 4.6% of GDP in 2025/26, reflecting a modest widening from the February budget projections.
Nedbank economists forecast the budget deficit to remain wide, “as the Treasury has limited room to reduce expenditure”.
They said the Treasury was constrained in its ability to reduce spending meaningfully, due to irreversible cost pressures such as the 5.5% public sector wage settlement and growth in social protection expenditure.
“As a result, we expect the budget deficit to remain wide at 4.8% in 2025/26, 4.5% in 2026/27, and 3.9% in 2027/28. The debt-to-GDP ratio will peak at 79.3% in 2026/27, but remain high, marginally easing to 78.7% in 2027/28,” they said.
The Bureau for Economic Research (BER) forecasts a R29.2bn revenue shortfall compared with budget 2.0, and warns that significant tax decisions may be pushed to the October medium-term budget policy statement due to ongoing legal challenges to the VAT Act.
Bank of America (BofA) held the same view, saying the Treasury’s 1.9% growth projection for 2025 looked increasingly optimistic.
BofA economist Tatonga Rusike expected a “small downward revision” to 1.5%-1.6%.
“If that’s the case, spending cuts would be moderate, and the budget would likely get buy-in from GNU [government of national unity] partners. Fiscal hard truths will have to wait for the October midterm review. Markets would probably like a ‘no-increase-in-issuance’ budget,” he said.
Nedbank economists expect medical aid tax credits to be reduced, “particularly for higher-income earners”.
On the spending side, the BER estimated that savings of about R10bn could be achieved, “leaving fiscal slippage of about R19bn”, BER economist Tracey-Lee Solomon said.
Still, the overall tone of budget 3.0 is expected to be conservative, aimed at reassuring markets and credit ratings agencies, despite a downward revision in GDP growth for 2025.
Also on Wednesday, headline consumer price inflation (CPI) for April is expected to remain unchanged at 2.7% year on year, according to independent economist Elize Kruger, Nedbank economists, and Khumbulani Kunene, investment analyst at FNB Wealth & Investments.
Kruger forecast the monthly increase at a modest 0.1%.
“Fuel price declines of 72c/litre for petrol and 84c/litre for diesel, with generally subdued pricing, helped keep inflation well under control,” said Kruger, adding that she projected an average headline inflation rate of 3.2% for 2025, citing subdued price pressures across the economy.
Kunene concurred: “Some monthly pressure could show up in food inflation, while fuel price declines continue to contain overall inflationary pressure. The favourable base effects that have kept headline inflation about the bottom of the inflation target range should start to fade at about the turn of the year.”
Kruger expects core CPI print at 3.2% year on year, up slightly from 3.1% in March, based on a 0.3% month-on-month increase.
“It is clearly evident that the SA Reserve Bank has ample scope to cut interest rates from the current repo rate level of 7.5% by at least 50 bps [basis points]. Real interest rates are simply unnecessarily punitive for an economy muddling along, unable to gain meaningful momentum,” she said.
Retail trade sales for March, due on Wednesday, are expected to reflect continued momentum, albeit at a slightly softer pace.
“This suggests that the recent surge in shopping activity is losing steam, raising concerns that the retail sector could weigh on GDP growth in 2025’s first quarter,” Kunene said.
Nedbank forecasts a 3% year-on-year increase, down from 3.9% in February, supported by improved real incomes, low inflation and earlier monetary policy easing.
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