Where will the money come from?
Minister of finance Enoch Godongwana will have a daunting task, as he needs to address the following challenges when he delivers his budget speech on Wednesday.
Will the economy grow by 1.5%, as was predicted in last year’s budget, or even the adjusted 0.8% projected during the October medium-term budget policy statement (MTBPS)? If not, government revenue and debt will remain under pressure. The latest forecast by the IMF last month indicates that: “The economy will likely grow by a meagre 1% this year, significantly slower than the IMF’s forecast in October, when it saw South Africa’s GDP expanding by 1.8%.”
How will the government reduce debt service costs, which are now the biggest item on the budget? Debt service costs more than doubled between 2008 and
2023. The gross debt stock is projected to increase from R4.73-trillion in financial 2023 to R5.84-trillion in financial 2026.
Due to Eskom debt relief, government debt is at higher levels, exceeding 70% of GDP, and will stabilise at 73.6% of GDP in financial 2026.
How will the government address the issue of the ever-growing public sector salary account? In 2023, an average increase of 7.5% salary adjustment for public servants for financial 2024 and a capped projected CPI salary increase for financial 2025 was negotiated and accepted.
Will the government give more structured plans on the two main issues suggested in the MTBPS, reconfiguration of state departments and reforms towards improving energy security (Eskom) and transport efficiency (Transnet)?
In last year’s budget speech, the minister summarised the above dilemma: “There are risks to the fiscal outlook. These include a worsening of the economic outlook, a further weakening of the finances of stateowned companies, and an unaffordable public-service wage agreement.”
How will these dilemmas affect the new budget? The question remains if the same improvement in tax revenue for financial 2024 is envisaged. Data from Goldman Sachs Economic Research indicates that total revenue over a 12-month rolling basis in December 2023 was 3.9% higher, compared with the MTBS forecast of 2.6%. Revenue is expected to be R10bn-R20bn more than the MTBPS projections.
Government expenditure, according to Goldman Sachs, slightly exceeds the MTBPS forecast. However, the Treasury is still expected to outperform the full-year main budget deficit estimate of 4.7% of GDP and its objective of a 0.3% of GDP primary surplus. (Primary surplus or deficit is income against expenditure before interest payments and capital expenditure.)
If the government, therefore, keeps with its medium-term income and expenditure framework projections for financial 2025, and the economy grows about 1%, there may be minor adjustments to taxes. The following tax adjustments, however, may also be imposed:
Personal income tax brackets may not ● be fully adjusted for inflation;
Medical tax credits may not be ● increased to adjust for inflation;
The retirement tax tables for lump sums ● withdrawn before retirement and those withdrawn at retirement may not be adjusted upwards;
The fuel levy and Road Accident Fund ● levy may be adjusted upwards, as there haven’t been adjustments in two years; and Sin taxes will be increased as usual. ●
The main other question that has been asked over the last few months is if the government will ask the Reserve Bank to release some of the R500bn in the gross gold and foreign reserves account. Like other developed countries, these reserves can be used for general debt relief, to pay back Eskom and Transnet debt, and to reduce the debt service cost.
The minister may then have some room to manoeuvre for needed infrastructure and other development financing to ignite better economic growth and sustainable development. Is there the political will to do this, and would these funds spark a new round of state capture?