Treasury warns weak household finances and slow growth threaten fiscal sustainability

Weak household finances, slow economic growth and an already stretched tax base pose a risk to long-term fiscal sustainability, according to National Treasury director-general Duncan Pieterse. While the government has made progress in stabilising debt and restoring fiscal discipline, the financial health of households remains a factor in determining the country’s long-term fiscal sustainability. Speaking at the Momentum post-budget breakfast in Cape Town on Friday, Pieterse said the financial pressure on households limits the government’s ability to increase tax revenue while increasing demand for state support.

He said the biggest risk is low economic growth and that without higher growth it is difficult to improve revenue and reduce fiscal pressure. According to the director-general, households were already heavily taxed, leaving little room for further tax increases without harming consumers and economic activity. He said the tax burden is already high and there is limited space to increase taxes further without affecting household consumption and economic growth.

“The idea that both corporates and households are quite overburdened from a tax perspective, and you can see it in our tax-to-GDP ratio, is something that we are very sensitive to and something that we continue to monitor,” he said. This comes as finance minister Enoch Godongwana said in the 2026 budget speech that the government had made progress in stabilising public finances after years of deterioration. He said the budget deficit was narrowing and the government was maintaining fiscal discipline while debt-service costs were expected to ease over time.

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“The consolidated budget deficit has narrowed to 4.5% of GDP for 2025/26, an improvement from 4.8% that we estimated in the 2025 budget. The deficit falls to 4% in 2026/27 and 3.1% the year after,” the minister said. “Gross debt stabilises as a share of GDP in 2025/26, at 78.9%. The slightly higher debt peak this year reflects weaker nominal GDP growth and our decision to take advantage of strong investor demand in domestic and global markets by increasing issuance in 2025/26.” However, weak household income growth and financial vulnerability continue to pose structural risks to the fiscus by limiting tax revenue and increasing reliance on social spending.

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