Budget 2025: We need economic growth and jobs please

Economists want to see more information about how the government will stimulate economic growth and create more jobs in Budget 2025 on Wednesday. The main aim is to create an environment that will increase investment.

Professor Waldo Krugell from the North-West University School of Economics says Finance Minister Enoch Godongwana has one job: to get us closer to 1.5% and 2% economic growth. He also warns that this kind of growth will not come from repo rate cuts or savings pot spending but must come from investment.

“The president promised infrastructure investment in the State of the Nation Address (Sona), but most of the numbers he mentioned will not be new money, as it was already in the Medium Term Budget Policy Statement (MTBPS).

“The infrastructure spending has to come from the private sector, and it requires reforms. There are two parts to this. One is innovative funding models, getting private capital into public services. The other is just progress with reform in general that can boost confidence and boost investment (regular gross fixed capital investment) and then growth.”

He says the Bureau for Economic Research (BER) scenario of 3% growth is built on a virtuous cycle of reforms boosting confidence, increasing investment and growth, and fuelling a stronger rand, more investment and more growth.

“All this means that the budget numbers are not going to tell us much about whether he is able to engender confidence and boost growth. It is all the other things that matter, and unfortunately, he is not the only one driving those reforms. At best, he can steady the ship and build confidence by keeping us out of a debt trap.”

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Budget 2025 priorities to balance fiscal consolidation and growth priorities

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, agree that the minister’s priorities should be balancing fiscal consolidation and growth priorities.

They point out that Godongwana MTBPS in October highlighted fiscal challenges while maintaining a consolidation strategy, which they expect to continue, although it will be with risks and challenges. In addition, they point out that President Cyril Ramaphosa signalled in his Sona plans to transform the Social Relief of Distress (SRD) grant into a more sustainable income support mechanism.

“Meanwhile, public-sector wage pressures remain a key risk, especially after the higher-than-budgeted 5.5% wage increase offer for 2025/26. Potential bailouts for state-owned enterprises (SOEs), such as Transnet, also pose risks to the fiscal framework, which currently assumes no additional SOE funding.”

They estimate fiscal support for Transnet and other SOEs will total R75 billion over the medium term, impacting debt stabilisation, which Treasury currently projects to peak at 75.5% of gross domestic product (GDP) in 2025/26. “Given these spending pressures and growth constraints, we expect a more prolonged path to debt stabilisation.”

Despite these challenges, they say the GNU’s priorities remain clear: driving inclusive growth and job creation, reducing poverty and the cost of living and strengthening governance. These objectives were reaffirmed in the MTBPS and Sona.

“The previous budget allocated R943 billion to infrastructure and the president has reiterated that reforms and investment in infrastructure are critical to achieving growth above 3%. Efforts to increase private-sector participation in public infrastructure projects are underway, with further updates expected in the 2025 Budget Review.”

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More positive outlook for Budget 2025

Isaac Matshego, Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, expect that better revenue growth will reduce the budget shortfall in the past financial year.

“Gross tax collections for fiscal year 2024/25 will slightly exceed the MTBPS estimate but remain below the 2024 Budget projection by more than R20 billion. Personal taxes have increased sharply, boosted by the two-pot retirement fund withdrawals.

“At the same time, company taxes will likely beat October’s projections. However, VAT growth will probably fall short of the MTBPS’s estimate, contained by the faster-than-expected deceleration in inflation.”

They say over the next three years, faster economic growth and rebounding tax buoyancy will boost tax collections but will still be well below the trajectory set out in February 2024.

“The National Treasury will likely reduce its 2024 forecast for real GDP growth to reflect the impact of the sharp contraction in agriculture in the third quarter. The outlook appears more encouraging as the economy benefits from favourable weather, steadier electricity supply, subdued inflation, modestly lower interest rates and reasonable global demand.

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Downside risks to economic growth due to US trade war

“However, downside risks to domestic growth are still elevated, primarily due to the looming threat of an escalating trade war between the US and its trading partners. We forecast real GDP growth to average 1.6% a year between 2025 and 2027, which aligns with Treasury’s 1.8% forecast in the MTBPS.

Matshego, Khosa and Weimar noticed that non-interest expenditure increased by less than 3% in the first nine months of financial year 2024/25, running well below last year’s budget and MTBPS targets. “Debt service costs increased less than projected, while Treasury seems to have absorbed the higher wage bill within the original allocations.

“Although encouraging, the higher-than-budgeted public sector wage settlement will exert upward pressure on expenditure from 2025/26 to 2027/28. We expect the consolidated budget deficit to narrow slightly to 4.4% of GDP in the current financial year from 4.5% in the previous financial year, beating the 5% reflected in MTBPS.”

They expect the public debt ratio to rise over the next two fiscal years before slowly starting to ease. They also expect some clarity on the review of the inflation target, while a fiscal rule will not be announced.