Budget allays investor fears but leaves ordinary South Africans in an economic conundrum

Budget Speech for 2024, by the Minister of Finance, Enoch Godongwana, to Parliament, in Cape Town. Photographer: Ayanda Ndamane / Independent Newspapers

Budget Speech for 2024, by the Minister of Finance, Enoch Godongwana, to Parliament, in Cape Town. Photographer: Ayanda Ndamane / Independent Newspapers

Published Feb 25, 2024


Finance Minister Enoch Godongwana managed to tread the fine line with his 2024/2025 Budget Speech this past week.

Pundits touted the platform as his opportunity to demonstrate the country’s commitment to reigning in liabilities, as demands on public finances increase ahead of the national election schedule for May 29.

His budget centred around a plan of action to tackle the fiscal deficit.

Macroeconomic aggregates were very much in line with what economists expected - weak economic growth, sustained high inflation that impacts interest rates and high levels of unemployment and poverty - which motivated extending and increasing the social wage support grant.

Neil Roets, the CEO of Debt Rescue, told Business Report that the minister delineated government plans to cut inefficient expenditure and spur economic growth potential to boost revenue and reduce funding shortfalls.

Will Godongwana’s budget meet the expectations needed to turn things around and regain the trust of key global players like the International Monetary Fund? That is the fervent hope of 61 million South Africans,” Roets further said.

“In the days leading up to his speech, economists asserted that it would require the minister prioritising disciplined budgeting, efficient tax collection, responsible spending, and sustainable economic growth promotion to get the country back on the road to economic development and ease the burden on South African households,” Roets added.

Experts, including auditing firm PwC, speculated that increasing VAT could well be the most economically efficient and least harmful way to collect the additional R15 billion needed to cover the National Treasury’s additional shortfall, while others warned that the Finance Minister might have to dip into the country’s foreign currency reserves to raise additional revenue to shore up the fiscus instead of tax hikes.

However, National Treasury took a bold decision to potentially dip into the reserves when funds are available. The government will be tapping into the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to the tune of R150bn.

SARB Governor Lesetja Kganyago previously had expressed concerns about the shift towards "paper money", fearing it might alarm investors assessing South Africa.

The news that the Covid-19 social relief of distress grant was extended at a cost of R33.6bn until March 2025, with provisional allocations of R35bn and R36.8bn being allocated in the subsequent two years, has been met with mixed feelings from many quarters.

“The Budget figured in minimal increases for social grants, with the old age grant, war veterans, care dependent and disability grants by R100 in 2024, receiving R90 effective from April this year and the remaining R10 from October onwards,” Roets added.

“With households across the country fast sinking into debt and poverty, it is difficult to see how an increase in expenditure with no expectation of economic return – as with the social grants’ increases and the continuation of the Covid-19 social relief of distress grant - promotes economic development and how it will ease the burden on the millions of South African households who are part of the working economy,” Roets added.

With a full third of the nation without income and in light of the just-released Quarterly labour force survey data by Stats SA, which show a rise in unemployment figures - from 31.9% in the third quarter of 2023 to 32.1% in the fourth quarter - it is not difficult to understand how government grants are indeed the only lifeline for many people.

Currently, 28 million South Africans receive at least one social grant from the state, and a further 10 million unemployed people receive the Special Social Relief of Distress Grant.

“My concern is that an increase in unemployment leads to diminished trade and a contraction of the economy, plummeting even more citizens into debt and poverty. In the end, if the consumer is not doing well, the economy is not doing well,” Roets said.

“When unemployment is high, social dependency rises with it. The solution lies in stimulating job creation, especially among our youth, as the only way to turn the economy around is through broadening the base of citizens who work to earn an income,” he said.

Personal income and corporate tax

Godongwana announced there will be no relief for individual tax payers for inflation thereby saving the fiscus R16.3bn. There will also be no inflation relief for medical tax credits, at a saving of R1.9bn.

On the upside there will be no increase in personal income tax.

The inflation risk

According to the SARB’s chief economist, Chris Loewald, persistent, weak South African economic growth and difficulty in sticking to spending targets may disrupt the return to lower inflation, showing the urgent need for consistency in fiscal policy.

Loewald cites macroeconomic policy inconsistency as the driver of fiscal slippage and weak underlying growth risks that are derailing the envisioned disinflation.

The country has consistently missed its debt targets, and the annual average growth rate has been less than 1% in the past 10 years.

“This, of course, impacts the Monetary Policy Committee’s decisions regarding the repo rate – with the next adjustment coming up in March. With the main priority now being bringing inflation down from 5.1%, it remains to be seen whether the Minister’s 2024/2025 Budget will effect this,” Roets went on to say.

The energy crisis rolls on

He said: “The energy crisis continues to put the brakes on South Africa’s economy and strains households, with the latest round of blackouts reaching Stage 8 and pushing households and businesses to their limits.

“It is without question the primary obstacle to South Africa’s economic growth right now. The budget proposes increasing the eligibility limit for renewable energy projects under the carbon offset scheme from 15 to 30 megawatts, aimed at fostering more investment in renewable energy.

“Eskom continues to play a vital role in the power sector, with the debt relief plan allowing it to focus on its fundamental activities. Moreover, to aid these initiatives, a new R2bn conditional grant is being introduced over the medium term to finance the deployment of smart prepaid meters,” Roets added.

“These are great plans and I applaud our government for driving these initiatives. What we need right now though is 100% grid stability to enable businesses to operate at capacity. This will restore investor confidence and may be leveraged to pull the country up from its current status. It could very well be the only shot we have at recovering as an economy and a people,” Roets said.

Paying for our sins

Sin taxes are the bane of South African’s lives especially now with the cost of living all but placing their little daily luxuries out of reach.

“The Minister’s proposed above-inflation increases in excise duties of between 6.7 and 7.2% percent on alcohol. Tobacco excise duties will be increasing by 4.7% for cigarettes and vaping products will be taxed at R3.04c per millilitre, which may marginally impact the pockets of some consumers, but sadly, given the current economic conditions, for many people it will come down to making the choice between a nutritious meal or a drink and ‘smoke’ to take the edge off the day,” Roets added.