‘Pie not growing fast enough’
ELECTION YEAR: MINISTER RAISES NO TAXES, FUEL LEVY AS ‘FRAGILE’ ANC WILL BE ‘STUPID’ TO
Expert pans speech saying taxes will have to go up after voting.
With the general election looming, Finance Minister’s Enoch Godongwana’s 2024 Budget speech was seen as more of an election speech and focused less on maintaining fiscal responsibility, according to an industry heavyweight.
Godongwana announced increases in social grants and that the R350 a month social relief of distress grant for nine million people would continue until March next year. The proposed “two-pot” pension system would kick into operation in September, allowing workers to withdraw up to 25% of their pension savings to help alleviate financial distress.
Political analyst Daniel Silke said Godongwana had to balance the harsh realities of the weak economy with providing some level of support for as many of the electorate as possible.
“Given that this was pre-election, the minister was going to always ring-fence social spending, and we’ve seen wages and social spending ultimately are going to be secured as a result of this budget, but that certainly is with a view to the election,” he said.
“You have an ANC under severe pressure and the ANC has to provide some guarantee to its voting body that aspects of salary increases and social service spending, the income grants, are going to be safeguarded.”
Godongwana said taxes would not increase and neither would the general fuel levy.
Silke added any government in an election year, especially such a fragile government, would have been “stupid to ever consider raising indirect taxes or additional fuel levy”.
“That was a politically prudent decision and that doesn’t mean it won’t happen in future – in fact, if we can’t grow our economy, we will simply have to raise indirect taxes after South Africans have voted,” he said.
Silke said Godongwana’s address was a pre-election budget speech.
There was not enough innovative policy making coming out of government to provide sufficient growth into the future.
Silke said government had used the country’s foreign currency contingency reserve to alleviate debt and it was a very large offset. “The GDP [gross domestic product] growth projections for the next few years are very low. They reflect the structural problems within our economy, also the poor policy-making and execution of policy,” he said. “We’ve seen short-term issues addressed with a view to the elections. We haven’t seen sufficient medium- to longer-term issues addressed, to restructure our economy for better growth.
“In the long term, you need a growing economy and a diversified
economy to really keep those contingency reserves growing. And we have now diminished those contingency reserves.”
Godongwana’s budget speech, delivered yesterday centred on strategies for boosting public finance revenue and kick-starting economic recovery.
He started by saying despite an improved global outlook for 2024, near-term growth remained “hamstrung by lower commodity prices and structural constraints”.
The revision was due to weaker-than-expected outcomes in the third quarter of 2023, particularly in household consumption and fixed investment.
“We estimate real GDP growth of 0.6% in 2023. This is down from 0.8% estimated during the 2023 medium-term budget policy statement,” he said.
Godongwana said between 2024 and 2026, growth was projected to average 1.6%, with the growth outlook supported by the “expected easing of power cuts ... and as lower inflation supports household consumption and credit extension”.
“Our challenge is that the size of the pie is not growing fast enough to meet our developmental needs,” he said.
In his fiscal outlook and strategy, Godongwana said, compared to a year ago, the budget deficit for 2023-24 was estimated to worsen from four percent to 4.9% of GDP.
“The higher budget deficit means that debt-service costs in 2023-24 have been revised higher, by R15.7 billion to R356 billion.”
Godongwana said National Treasury had taken the decision to introduce a reform of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which captured gains and losses on the country’s foreign currency reserve transactions.
“The national government gross borrowing requirement will decline from R457.7 billion in 2024-25 to R428.5 billion in 2026-27. The deficit will begin to improve from 2024-25 to an estimated 4.5% of GDP, reaching 3.3% by 2026-27. Debt will now peak at 75.3% of GDP in 2025-26,” he said.
“Simply put, if the rand strengthens against the US dollar and other reserve currencies, the account balance declines, and vice versa. The account balance has grown to over R500 billion over the years because the rand has depreciated over time.”
“A new settlement arrangement is being introduced that will reduce government borrowing and improve the Reserve Bank’s equity position.”
Near-term growth hamstrung