Minister’s sleight of hand
2024 BUDGET: WHAT LOOKED LIKE GOOD NEWS WAS ‘AN EFFECTIVE TAX INCREASE’ ➽ SA has four times as many grant recipients as personal income taxpayers.
The 2024 budget allocated six of every R10 to the social wage – spending on health, education, social protection, community development and employment programmes.
The country has only 7.1 million personal income taxpayers, according to Duncan Pieterse, director-general at the National Treasury, in his foreword to the Full Budget Review.
Treasury says almost 51% of consolidated spending will continue to be spent on the social wage. Apart from the country’s interest payments on its debt, social wage takes up 60% of the national budget.
The social wage got another R58 billion from Treasury, reversing the spending reductions announced in the medium-term budget policy statement last November and it added R251.3 billion to functions like health, education, peace and security and social development.
This was primarily to cover the carry-through costs of the 202324 public servant wage increase, extension of the social relief of distress (SRD) grant and other social grants.
Although Treasury increased spending on social services, it urged departments to rationalise their programmes and evaluate their priorities to reduce spending, saying over the medium term, Treasury will continue to support the implementation of recommendations from the 2021 spending reviews, particularly proposals to close certain programmes or institutions as part of a broader government rationalisation process.
Therefore, government cut spending on economic and community development, as well as general public services to afford the significant increases for health care, education and social grants, the largest parts of the social wage. Government spends more on these than on policing and economic development.
Finance Minister Enoch Godongwana said in his 2024 Budget speech the government will spend R266.21 billion on social grants in the next financial year, which is 3.6% of gross domestic product, a significant increase from the current financial year spending of R250.97 billion.
In the current financial year 27.78 million people received grants and this is expected to increase to 28.31 million in the next financial year, starting in March.
More than 9.2 million people will receive the SRD grant this year, while other grants are expected to increase from 18.8 million people in 2023-24 to 19.7 million in 2026-27.
However, while government is spending more, the number of taxpayers is declining.
A year ago, the country had 7.4 million personal income taxpayers. Now it has only 7.1 million. This means SA now has four times as many grant recipients as personal income taxpayers.
At first consumers were relieved that income tax and VAT were not increased.
The pressure was on for Godongwana to give South Africans some good news, especially in an election year, said Farzana Bayat, portfolio manager at Foord Asset Management.
“But this did not come for big business or individuals. “With tax tables not being adjusted for inflation, an effective tax increase for individuals was announced, bringing in as much as R20 billion in additional revenue,” he said.
“Godongwana also confirmed that multinational corporations with an annual revenue exceeding €750 million (R15.2 billion) will be charged an effective tax rate of at least 15%, regardless of where the profits are generated.
“The proposed reform is expected to yield an addition R8 billion in corporate tax revenue in 2026-27.”
Dr Chris Blair, chief executive of 21st Century, said the restraint of significant tax increments offers a semblance of relief, but the strategic use of reserve funds to augment public sector wages in critical services heralds a reinforced allegiance to social expenditure.
“Delving deeper into the individual impacts, the decision to maintain the current VAT rate alongside unchanged wealth tax and levies directly influences the cost of goods and services, thereby stabilising consumer expenses.
“However, the absence of adjustments in personal income tax tables to counter inflationary pressures ominously looms as a potential detriment to disposable incomes, heralding the phenomenon of ‘bracket creep’ and the consequent erosion of real disposable income.”
The reform is expected to yield R8bn in 2026-27