The medium-term budget policy statement presented by South Africa’s finance minister, Enoch Godongwana, to parliament on November 1, 2023, is intended to provide a preview of the government’s public finance. The statement reflects the difficult and contested decisions that the government must make regarding the country’s fiscal situation. The medium-term budget policy statement commits the government to support the economy, stabilize public finances, and address some of the country’s most pressing challenges.
Here Are Some of The Talking Points From The Medium-Term Budget Policy Statement:
- The medium-term budget policy statement commits the government to support the economy, stabilize public finances, and address some of the country’s most pressing challenges.
- The national debt levels relative to the size of the economy have increased substantially since 2008. The three main reasons are the global financial crisis that started in 2007, continued slow economic growth partly because of state capture and power outages, and the COVID-19 pandemic.
- The budget document presented to parliament projected wider deficits over the next three years and saw debt peaking at a higher level than in previous forecasts.
- The government plans to propose tax measures to raise additional revenue of 15 billion rand in 2024/25 in the 2024 budget, but it did not elaborate on the specific measures.
- Revenue collections for 2022/23 are now projected at R1.68 trillion, down R56.8 billion from the projections submitted in February. Personal income tax is down 1.3%, companies’ tax is down 0.3%, and VAT is down 3.9%.
- Spending for 2022/23 has been reduced by R21 billion, and further spending cuts of R64 billion (2024/25) and R69 billion (2025/26) are planned.
- Social grants will be increased by R34 billion to extend the Social Relief of Distress Grant (SRD grant) for another year to the end of March 2025
- Public wages will be increased by R24-billion this year, and R74-billion over the medium term to fund the 2023/24 wage increase.
- Eskom bail-out has been changed from a no-interest loan to an interest-bearing loan. Transnet will not receive a bailout or assistance until progress has been made towards enhancing efficiencies, facilitating competition, and leveraging financial and technical support of the private sector.
- The poor economic growth outlook could lead to higher unemployment and poverty levels, which could negatively affect the standard of living of South African citizens.
Key Areas the Medium-Term Budget Policy Needs to Priorities:
The medium-term budget policy statement reflects the difficult economic situation that South Africa is facing, and the government will need to make difficult decisions to address the fiscal challenges. The specific impact on the South African people will depend on the government’s policy decisions and the effectiveness of its implementation. Below are some of the key areas of concern.
The Fiscal Landscape: Challenges and Debt
South Africa’s fiscal situation is currently at its most challenging since the post-apartheid era. The budget review highlights that the country’s national debt levels have significantly increased in recent years, primarily due to various factors such as the global financial crisis, slow economic growth, power outages, and the COVID-19 pandemic. As a result, national debt is projected to reach almost 75% of GDP by next year, a level that would have been considered unsustainable before the pandemic.
To address the growing debt burden, the government aims to implement measures focused on fiscal consolidation. However, it is crucial to strike a balance between reducing debt and avoiding social harm and economic contraction. The sustainability of national debt is a crucial factor in determining the country’s public finances and requires careful consideration.
Taxation and Fiscal Consolidation
The budget highlights the importance of curbing borrowing to maintain South Africa’s financial health. The government currently borrows at a rate of R2.1 billion per day, a situation that is unsustainable in the long run. To ensure fiscal sustainability, it is crucial to allocate tax revenues towards investment and service delivery rather than servicing debt.
Fiscal consolidation measures, including the implementation of zero-based budgeting, aim to improve governance and strict budget management. The government must prioritize essential programs while eliminating unnecessary expenditures. Operation Vulindlela, led by Deputy Minister David Masondo, will be critical in coordinating and fast-tracking the implementation of structural economic reforms.
Rebuilding the Economy
Finance Minister Enoch Godongwana emphasizes the need to rebuild the South African economy, rehabilitate public finances, and recover from the devastation caused by the COVID-19 pandemic. The Economic Reconstruction and Recovery Plan, announced by President Cyril Ramaphosa, provides a strategic direction for this endeavour. The plan aims to avert a sovereign debt crisis and focuses on infrastructure development, energy, job creation, and access to finance for small businesses.
Infrastructure and Energy
Infrastructure and energy play a vital role in South Africa’s economic recovery. The budget allocates substantial funds for infrastructure development, including social housing programs, with a total investment of R20 billion over the next 10 years. The government plans to procure almost 12,000 MW of new electricity capacity from independent power producers to address the challenges posed by load shedding. These investments in infrastructure and energy are expected to stimulate economic growth and create employment opportunities.
Addressing Fraud and Corruption
While there have been allegations of corruption, transparency and accountability in the allocation and management of funds are crucial to restoring public trust and ensuring the effective implementation of economic recovery measures. The success of these plans relies on effective implementation, coordination between government departments, and collaboration with the private sector. With careful management and a commitment to transparency, South Africa can navigate its way towards sustainable economic growth and emerge stronger from the current fiscal challenges.
Conclusion
- The reduction in spending and increase in social grants have been seen as positive steps by some economists, but others have criticized the lack of specific measures to address the poor economic growth outlook and provide relief to the poor.
- The government did not elaborate on the specific tax measures it plans to propose to raise additional revenue of 15 billion rand in 2024/25 in the 2024 budget.
- The DA criticized the government for not doing enough to provide relief to the poor and reduce taxes and levies on fuel.
- The change in the Eskom bail-out from a no-interest loan to an interest-bearing loan has been seen as a positive step towards fiscal prudence by some economists, but others have criticized the lack of progress in enhancing efficiencies, facilitating competition, and leveraging financial and technical support of the private sector.
Overall, the feedback from Economists on South Africa’s medium-term budget policy statement has been mixed, with some welcoming the government’s commitment to addressing the country’s fiscal challenges, while others have criticized the lack of specific measures to address the poor economic growth outlook and provide relief to the poor.
Sources: Treasury Reuters TheConversation News24 DailyMaverick Gov
