Finance Minister Nhlanhla Nene is between a rock and a hard place, says Freedom Front leader Pieter Mulder.

"The minister only has one of two choices -- he either has to increase taxes, or drastically cut state expenditure," he said in a statement on Tuesday, a day ahead of Nene's tabling of the medium-term budget policy statement in Parliament.

Mulder said Nene had extremely limited room for manoeuvring.

Given South Africa's very low economic growth rate, an increase in taxes would only restrict economic growth further.

"This will be the wrong choice."

Nene also needed to show that the government understood the seriousness of South Africa's current financial crisis, and was prepared to take drastic steps to improve it.

These should include the restriction of government spending, and resisting unreasonable trade union demands.

"Simple maths shows that the state's expenditure is still increasing at a rate far above that of the inflation rate, while tax revenues are not keeping up with it."

The result was sovereign debt getting out of hand.

Both national and foreign observers, as well as international credit rating agencies, would be watching closely to see whethr Nene's budget address "indicates that government grasps the seriousness of the current situation, and is prepared to apply discipline and restrict state expenditure".