Budget 2024: trying to do more with less

The Budget speech 2024 that Finance Minister Enoch Godongwana delivered on Wednesday afternoon was an exercise in trying to do more with less, with the minister admitting the challenge is that the size of the pie is not growing fast enough to meet the country’s developmental needs.

Godongwana warned at the outset that compared to a year ago, the budget deficit for 2023/2024 is estimated to worsen from 4% to 4.9% of gross domestic product (GDP).

“The higher budget deficit means that debt-service costs in 2023/24 have been revised higher, by R15.7 billion to R356 billion.”

Debt-service costs will absorb more than 20% of revenue, Godongwana said.

“To put this into perspective, spending on debt service costs is greater than the respective budgets of social protection, health, or peace and security.”

Debt will now peak at 75.3% of GDP in 2025/2026. He said taken together, even with the spending increases announced, national government’s gross borrowing requirement will decline from R457.7 billion in 2024/2025 to R428.5 billion in 2026/2027.

“The deficit will begin to improve from 2024/2025, to an estimated 4.5% of GDP, reaching 3.3% by 2026/2027.

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Dipping into government reserves

In a move that was expected by many experts, the minister said that government decided to introduce a reform of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), an account held at the Reserve Bank that captures gains and losses on the country’s foreign currency reserve transactions.

“Simply put: if the Rand strengthens against the US Dollar and other reserve currencies, the account balance declines and vice versa. The account balance has grown to over R500 billion over the years because the Rand has depreciated over time.”

Godongwana said a new settlement arrangement is being introduced that will reduce government borrowing and improve the Reserve Bank’s equity position.

“Ultimately, we are bringing South Africa closer to our peers and ensuring alignment to international best practice. We will draw down R150 billion of the GFECRA balance once we have ensured that sufficient buffers are available to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised.”

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No new plan for Transnet

Turning to the endless logistics problems in the country, Godongwana said third-party access to the freight rail network will be introduced by May 2024, while a private partner has been secured to upgrade Pier 2 of the Durban container terminal.

“This should increase private investment in equipment, enhance technological capability and improve operational efficiency.”

Godongwana said government has provided a R47 billion guarantee facility to Transnet to support its recovery plan and meet its immediate debt obligations, but like government did for Eskom, the guarantee comes with conditions.

These conditions require Transnet to focus on its core activities and the introduction of private sector partnerships to improve Transnet’s sustainability and support the implementation of the logistics roadmap.

To support public infrastructure investment, Godongwana announced the introduction of fundamental and far-reaching reforms to infrastructure financing and delivery. The reforms aim to optimise the infrastructure value chain to be effective and efficient.

“In this way, we will strengthen the public investment management and the associated value chain. We will also attract private sector participation.”

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Sharp decline in tax collection

The minister also pointed out that the weak performance of the economy has resulted in a sharp deterioration in tax revenue collection for 2023/2024.

“At R1.73 trillion, tax revenue for 2023/24 is R56.1 billion lower than estimated in the 2023 Budget. The shortfall is largely due to the decline in corporate profits and revenue from taxes on mining.”

He said over the medium term, revenue projections are R45.6 billion higher than the 2023 MTBPS estimates which increased personal income tax and additional medium term revenue proposals. Therefore, the budget contains tax measures that will raise R15 billion in 2024/2025 to alleviate immediate fiscal pressure and support faster debt stabilisation.

“Revenue is mostly raised through personal income tax by not adjusting the tax brackets, rebates and medical tax credit for inflation,” he said before announcing the increases in the sin taxes, which also includes an increase on the excise duty on electronic nicotine and non-nicotine delivery systems, known as vapes, to R3.04 per millilitre.

Godongwana also announced increases in the carbon tax from R159 to R190 per tonne of carbon dioxide equivalent, while the carbon fuel levy will increase to 11 cents per litre for petrol and 14 cents per litre for diesel from 3 April 2024.

“We are mindful of the already high cost of living and the impact fuel prices have on food and transport costs. therefore, we are proposing no increases to the general fuel levy for 2024/2025. This will result in tax relief of around R4 billion which is money back in the pockets of consumers.”