Despite households facing constraints and the unemployment rate soaring; and the ongoing pressure on economic growth due to loadshedding and port, rail and road transport hiccups, there was a sense of relief when Finance Minister, Enoch Godongwana, delivered his 2024 Budget Speech, outlining revenue and spending plans for the upcoming year. Here are some of the highlights from Godongwana’s speech.

The budget framework

Government is staying the course on the fiscal strategy outlined in the 2023 Medium Term Budget Policy Statement (MTBPS) and will achieve a primary budget surplus in 2023/24, with debt stabilising by 2025/26.

Debt-service costs will peak as a share of revenue in 2025/26 and decline thereafter. The consolidated budget deficit is projected to narrow from 4.9 per cent of GDP in 2023/24 to 3.3 per cent by the end of the 2024 medium-term expenditure framework (MTEF) period.

The balanced approach to fiscal consolidation includes expenditure restraint and moderate revenue increases while continuing to support the social wage and ensuring additional funding for critical services.

The government will, after extensive consultation, propose a binding fiscal anchor for future sustainability. In the interim, the debt-stabilising primary surplus will anchor fiscal policy.

Spending programmes

Consolidated government spending will amount to R2.37 trillion in 2024/25, R2.47 trillion in 2025/26 and R2.6 trillion in 2026/27. As part of the overall changes, R251.3 billion has been added to the MTEF to ensure that the salaries of teachers, doctors, nurses, police and many other public servants are funded, and to maintain strong levels of social protection through 2026/27.

Spending across functions supports the implementation of new and existing policy priorities. Learning and culture receives 24.4 per cent (R1.51 trillion) of the total function budgets while general public services receive the smallest share at 3.7 per cent, or R231.5 billion.

An amount of R7.4 billion is set aside in 2024/25 for the presidential employment initiative, and the social ‘wage’ will constitute an average of 60.2 per cent of total non-interest spending over the next three years.

Tax proposals

The government proposes tax increases totalling R15 billion in 2024/25 to alleviate immediate fiscal pressures. There were no inflation adjustments to the personal income tax tables, and sub-inflation adjustments to medical tax credits. Excise duties on alcohol will increase between 6.7 and 7.2 per cent, while duties on tobacco products will increase between 4.7 and 8.2 per cent.

As in the 2022 and 2023 Budgets, the government again proposed no changes to the general fuel levy or the Road Accident Fund levy, resulting in tax relief of around R4 billion.

Two years from now, South Africa will implement a global minimum corporate tax, with multinational corporations subject to an effective tax rate of at least 15 per cent, regardless of where its profits are located. And on the incentive side, domestic producers of electric vehicles will be able to claim 150 per cent of qualifying investment spending as an incentive to aid the transition to new energy vehicles.

Experts weighed in

A long list of commentators have since weighed in on the key decisions in Minister Godongwana’s National Budget, with many responding favourably.

Angelika Goliger: EY Africa Chief Economist, said “the 2024 Budget is kind to South Africans, with no new major tax increases, the fuel levy remaining flat and a one-year extension in the Social Relief of Distress (SRD) grant, as announced by the President in the State of the Nation Address.”

“However, the biggest story out of the Budget is the R150 billion withdrawal from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), to reduce South Africa’s debt service costs through a reduction in borrowing. Due to the weakening of South Africa’s exchange rate, the value of the reserves in Rand terms increased from R1.8 billion in 2006 to R507.3 billion at the start of this year. The last settlement of this kind was done in 2003, according to the Treasury,” she added.

“Under the critical condition of having a strong legal framework in place to maintain the stability of the account going forward, use of this allocation in the context of reducing national debt is reasonable. As this is only a temporary measure, use of the GFECRA needs to be coupled with managing key expenditure risks going forward and strong economic growth to drive revenue. Reducing South Africa’s debt, and structurally shifting spending from consumption towards investment, will improve the ability of fiscus to support economic growth,” continued Goliger.

Getting bang for the GFECRA buck

Chief Economist at STANLIB, Kevin Lings, was overall positive about the GFECRA decision too. “The criticism from my perspective is that if you are going to use R150 billion as a windfall from foreign exchange reserves … I would have preferred to see that money make a more direct impact to economic growth, particularly via infrastructure development.”

He opined that much-needed improvements to electricity and transport infrastructure would contribute to the upliftment of the economy, more broadly, allows companies export more; invest more; and create more jobs. It is also worth noting that the composition of government spending remains unchanged, introducing the risk that the improvements made through applying this R150 billion windfall will swiftly be eroded by higher-than-prudent consumption-focused expenditures, especially in areas like state wages and social grants.

SOEs left high and dry

Commenting further, Goliger said: “This budget does not announce any new support for State Owned Entities (SOEs) but focuses on the progress of reforms, particularly at Eskom and Transnet, with the aim of reducing fiscal risk and driving the government’s broader economic reform agenda.”

“On the economic front, the Treasury expects South Africa to have grown by 0.6% in 2023 and GDP growth projections have been revised upwards for 2024 to 1.6%, from 1.0% at the time of MTBPS, and are expected to reach 1.8% in 2026. The Treasury anticipates this improved outlook to be driven by increases in consumer spending as inflation eases, and increased investment in energy infrastructure,” she added.

Optimistic growth in an otherwise bland review

“The Treasury’s view is relatively more optimistic compared to other forecasters, including the SARB, which projects growth of 1.2% in 2024. There are risks to the downside arising from geopolitical tensions, weaker growth globally and challenges in South Africa’s electricity and transport infrastructure,” Goliger concluded.

Lings concluded that the budget would be “absorbed quite easily” in the financial markets and that there was nothing untoward in the numbers to scare ratings agencies. “Overall, there were not a huge number of surprises,” he said.

On NHI – Treasury allocates R1.4bn to NHI preparation

In his Budget, Godongwana said health is allocated a total of R848 billion over the MTEF. These allocations include R11.6 billion to address the 2023 wage agreement, R27.3 billion for infrastructure, and R1.4 billion for the NHI grant over the same period. The allocation for the NHI is a demonstration of the government’s commitment to this policy. Medical tax credits remain and have not been adjusted for inflation.

Two-Pot Retirement System

Michelle Acton, Retirement Reform Executive at Old Mutual, commended Godongwana’s endorsement of the system in the Budget, adding that support at the highest level of government was critical to the industry meeting the September deadline to implement the new System.

Acton said the confirmation, which followed the passing of the Revenue Laws Amendment Bill by the National Assembly on Tuesday, was a significant step towards ushering in a new era of retirement financial security for more South Africa.

In addition to these developments, Acton noted that the industry was awaiting the gazetting of the Pension Funds Amendment Bill to provide much-needed certainty on the final version of the Two-Pot Retirement System regulations. The industry also needed the requisite SARS tax processes to be finalised.

Acton said: “We hope these will be finalised by the end of March. These vital steps provide the certainty the industry needs to move ahead with the finalisation of the infrastructure needed to ensure a seamless application process on 1 September this year. These are crucial for facilitating early withdrawal claims under the new system, a process dependent on finalising the Pension Funds Amendment Bill.”

Under the new Two-Pot Retirement System, a ‘savings pot’ will receive a maximum of one-third of all retirement savings and will be accessible before retirement age. In contrast, a ‘retirement pot’ will receive a minimum of two-thirds of all retirement savings and will only be accessible at retirement. A third ‘vested pot’ will contain all retirement savings until the implementation date and follow all current legislation.

Acton emphasised that from the time both laws were gazetted, retirement funds would need sufficient time to finalise building the new systems and structures required to facilitate withdrawals for members.

“As we are encouraged by the latest developments, we note that Old Mutual has already started to prepare for the new system. Up to 1 million of our fund members can come forward and claim once the system goes live. As administrators, we are working tirelessly to streamline our processes through digitisation,” said Acton.


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