Looking ahead to Finance Minister Enoch Godongwana’s budget later this week

Enoch Godongwana, South Africa’s Minister of Finance. Photograph: Phando Jikelo/ Independent Newspapers.

Enoch Godongwana, South Africa’s Minister of Finance. Photograph: Phando Jikelo/ Independent Newspapers.

Published Feb 18, 2024


Later this week on Wednesday, the National Budget Speech will be delivered in the Good Hope Chamber in Parliament, by Minister of Finance Enoch Godongwana.

Economists and the nation will be keeping a close eye on how the minister will be dividing the country’s finances in the midst of an energy crisis and a high unemployment rate, just some of the many economic headwinds facing South Africa.

Frank Blackmore, Lead Economist at KPMG South Africa, told Business Report that this year’s Budget again will have to support economic growth while also tackling the stabilisation of the finances.

Blackmore said, “The context once again of the budget will be that the central problems stem from low economic growth, load shedding, negative impacts, business and especially investment, deteriorating logistics infrastructure. This obviously means fewer goods moving to export markets, etc. Government capital investment is too low and has been for many years and government activities are inefficient and we'll hear about that again and the need to attract investment of course, both from the domestic, private sector as well as foreign direct investment. We'll see emphasis on strengthening economic growth - this came up in the medium term budget policy statement last year as well, because increasing growth will lead to increase in jobs and ultimately increasing tax revenues as well. One way to do that would be increasing the electricity availability as well as port and rail efficiencies in terms of their operations.”

“We will also hear that some money will go towards reconfiguring the state for greater efficiency. This was also mentioned in the medium term budget policy statement, things like combating waste and corruption, but also we will need more clarity on closing or merging nonperforming entities within government so that there isn't a duplication of activities. We will also hear a lot about narrowing the budget deficit and trying to stabilise debt,” Blackmore said.

“In the Medium-Term Budget Policy Statement, this was going to happen by 2025/2026 while still supporting the social wage. Attentionally, this will be revised upward again from the last figure we saw or will be pushed further down the pipelines of perhaps 2026/2027 and also the maximum amount of that debt will be increased. Reducing debt service cost which is already around 20% of the budget figure, this number will also potentially be raised upwards from the number we saw in the 2023 MTBPS presentation,” Blackmore added.

“Where we will get the money from? well expect some additional revisions to current spending patterns and moving money around, then there'll be small increases in taxes - things like bracket creep, sin and fuel taxes - we can expect those to go up marginally but the main Budget will be financed by increased debt once more and that in itself has other issues with respect to the country's credit rating, with respect to cost of borrowing, and all these issues come into play. Especially since the debt service cost comes to such a large component of our budget. From the MTBPS as well, revenue has decreased by around R56 billion at that point, we can expect to hear a similar story at this year's budget, while expenditure would have obviously increase from the previous budgeted amount, leaving this bigger hole to be covered by that increased borrowing,” he said.

“Remember that we have a history of this, so since about 2008 expenditure has been growing faster than revenues resulting in persistent deficits leading to increasing public debt, but without the reciprocal increase in public services, our debt service cost increased to around R354 billion over this period at around 22%, which is terribly large. Although the Minister of Finance does a good job, given the constraints he faces - the fact that the budgets are generally not adhered to, has meant that the budget process or management has lost credibility over the past 10 years,” Blackmore continued.

“Whatever is said at the budget, we know, is not going to be adhered to in future and that has led to a number of debt downgrades as previously mentioned and bond yields across the duration curve have increased, telling you there's extra risk irrespective of what duration you're looking for. Action and discipline inherence to the budget are not just statements of intent is what we require this time. Likely because these have been likely broken long before the medium-term budget policy statement of that year and if they do adhere to the budget however, we will create that certainty that's required to help attract investment and increase the economic growth.”

“In addition, if we can look at this year’s State Of The Nations Address and possibly allow that to indicate where further expenditure will be made, then we saw a number of priorities being mentioned - one is obviously to do with both electricity as well as the deteriorating logistics infrastructure, roads, ports, rail and then we heard the President mention innovative funding methods without actually mentioning what those may be. We would expect to receive feedback on what these funding methods would be. Potentially there would just be specifics on public/private partnerships where private money is pulled into a lot of these infrastructure projects. Secondly, we heard the social relief of distress grant will be continued for an additional year and that means if I assume 8 million recipients of this over the period of the year, an extra R34 billion needs to be generated in the economy to cover that. We also heard the NHI bill might be soon and although it will be incrementally implemented not overnight it would no doubt be additional funding requirements associated with this implementation irrespective of the extent thereof to set up a National Health insurance office or whatever it may be. Then there will always be the necessary increases by various public services and we heard the President mention things such as education as well as safety and security and health. We know specifically in health, where the above inflation wage increases in government have meant that a number of qualified doctors have been left unemployed due to the system not having the funding in order to hire those extra doctors in into hospitals around the country. I'm sure we'll hear more about that and then of course we'll hear from the struggling state-owned enterprises that will require clear the bailouts from government this year. Those will be the main expenditure items that that I predict will come up in this year's budget,” Blackmore said.

Hayley Parry, Money Coach and Facilitator at 1Life's Truth About Money, said that South African consumers are at their lowest point financially, that they've been in years.

“That's because salary increases haven't kept up with inflation and as a result, households have been forced to reduce their spending, and ultimately, this is impacting economic growth. This is the background that consumers face knowing that our Finance Minister, Enoch Godongwana is making his budget speech, in which he is going to tell us how the nation is managing its finances, as opposed to how we are managing our personal finances,” Parry said.

“The problem is that government has a similar position or similar problem to many of its citizens - this is that it is spending too much of its money that’s coming in, it's revenue, paying off debt, and that means that there's not enough left to run the country as it needs to and. So what that means is that next week we are likely to hear that government is going to be increasing taxes in order to find the money it needs so that it can continue to run the country, pay social grants, and all the things it needs to in the coming fiscal. What does that mean for you and I? Well, besides the obvious, there is obviously going to be an increase in all the sin taxes, probably inflation related, but there is also a possibility of an increase in personal income tax rates, corporate income tax rates, or even the VAT rate, and most economists are betting on it being an increase in our vat rate,” she added.

“Now, this is not going to be an easy or popular option for the government, particularly in an election year, but I think for us as consumers, the bottom line is that we need to brace ourselves and our wallets, because tax increases are coming. We just don't know where and by how much,” she further said.