Over the last few years there have been calls on the government to curtail its spending, prune its bloated cabinet, and stop bailing out badly managed state-owned entities. This year's budget demonstrates that the government has heeded these calls.
South Africa faces many problems including low growth, overspending, bailing out badly managed SOEs, burgeoning debt, high unemployment, and loadshedding.
South Africans who are battling high interest rates, high fuel and living costs have been anxiously waiting for Finance Minister Godongwana's Budget Review 2024 to see if there is much needed relief in the short-term, or more taxes that lower them deeper into the abyss.
The immediate takeaways from the budget are as follows:
- South Africa experienced a real GDP growth of 0.6% in 2023. This is down from 0.8% growth estimated during the 2023 Mid-Term Budget Policy Statement (MTBPS). Growth is projected to average 1.6% between 2024 and 2026.
- The budget deficit for 2023/24 is estimated to deteriorate from 4% to 4.9% of GDP. The higher budget deficit means that debt-service costs in 2023/24 have been revised by ZAR 15,7 billion to ZAR 356 billion.
- Debt-service costs will absorb more than 20% of revenue. To put this into perspective, spending on debt-service costs is greater than the total budget allocation for social protection, health, and peace and security.
- National Treasury (Treasury) will implement a net reduction of ZAR 80,6 billion in non-interest expenditure over the medium-term.
- Revenue has been revised up by ZAR 45,6 billion over the medium-term, relative to the estimates in the 2023 MTBPS.
- The rules regarding the Gold and Foreign Exchange Contingency Reserve Account, also known as GFECRA, are to be amended. Treasury will draw down ZAR 150 billion of the GFECRA balance once there are sufficient buffers in place to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised.
- The national government gross borrowing requirement will decline from ZAR 457,7 billion in 2024/25 to ZAR 428,5 billion in 2026/27. Debt will now peak at 75.3% of GDP in 2025/26.
- The deficit will begin to improve from 2024/25, to an estimated 4.5% of GDP, reaching 3.3% by 2026/27.
- 60% of non-interest spending to be directed to the social wage.
- An additional ZAR 57,6 billion is budgeted to pay for the salaries of teachers, nurses and doctors, among many other critical services.
- A new settlement arrangement is being introduced that will reduce government borrowing and improve the Reserve Bank's equity position.
- The limit for renewable energy projects that can qualify for the carbon offsets regime, will be increased from 15 megawatts to 30 megawatts.
- An independent review of Eskom's coal-fired power stations will be released in the coming week as part of the conditions attached to the debt relief plan.
- A new ZAR 2 billion conditional grant will be introduced over the medium term to fund the rollout of smart prepaid meters and will begin with municipalities that have been approved for debt relief.
- Government has provided Transnet with a ZAR 47 guarantee facility on condition that Transnet focusses on its core activities and introduces private sector partnerships.
- Amendments to the public-private partnerships (PPPs) are available for the public to comment. The amendments seek to reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, formulate clear rules for managing unsolicited bids, and strengthen the governance of fiscal risk.
- New financing instruments will be introduced, such as infrastructure bonds and concessional loans. Treasury is considering a new flow-through tax vehicle for specific infrastructure projects which will be similar to trusts and other investment vehicles. A new funding window for proposals will be opened to public institutions shortly.
- Treasury is reviewing disaster response grants to improve efficiency and create incentives for disaster planning, preparedness and risk reduction on mainstreaming climate finance.
- Treasury proposes to introduce an investment allowance for new investments in the production of electric and hydrogen powered vehicles in South Africa from 1 March 2026. Producers will be able to claim 150% of qualifying investment spending on these vehicles in the first year. ZAR 964 million has been reprioritised over the medium term to support this incentive.
- Tax revenue collection for 2023/24 has deteriorated to ZAR 1,73 trillion, ZAR 56,1 billion lower than estimated in the 2023 Budget. The shortfall is largely attributable to the decline in corporate profits and mining revenue.
- An additional ZAR15 billion of tax revenue will be raised in 2024/25 to alleviate immediate fiscal pressure and support faster debt stabilisation. This will be raised through personal income tax by not adjusting the tax brackets, rebates and medical tax credits for inflation.
Treasury proposes that excise duties between 6.7 and 7.2% will be raised for alcohol products as follows:
o a can of beer increases by 14 cents;
o a can of a cider and alcoholic fruit beverage goes up by 14 cents;
o a bottle of wine will cost an extra 28 cents;
o a bottle of fortified wine will cost an extra 47 cents;
o a bottle of sparkling wine will cost an extra 89 cents; and
o a bottle of spirits, including whisky, gin or vodka, increases by ZAR 5,53.
- Treasury proposes that excise duties on tobacco products are increased by 4.7% for cigarettes and cigarette tobacco, and by 8.2 per cent for pipe tobacco and cigars. This translates to:
o a R9.51 cents increase for cigars;
o a 97 cents increase to a pack of cigarettes; and
o an extra 57 cents for a pipe of tobacco.
- Treasury proposes that the excise duty on electronic nicotine and non-nicotine delivery systems, known as vapes, is increased to ZAR 3,04 per millilitre.
- Carbon tax will increase from ZAR 159 to ZAR 190 per tonne of carbon dioxide equivalent as of 1 January 2024.
- The carbon fuel levy will increase to 11 cents per litre for petrol and 14 cents per litre for diesel effective from 3 April 2024.
- There will be no increase in the general fuel levy for 2024/25.
- The early childhood development grant is allocated ZAR 1,6 billion rising to ZAR 2 billion over the medium term.
- Health is allocated a total of ZAR 848 billion over the MTEF. These allocations include ZAR 11,6 billion to address the 2023 wage agreement, ZAR 27,3 billion for infrastructure, and ZAR 1,4 billion for the NHI grant over the same period.
The early childhood development grant is allocated ZAR 1,6 billion rising to ZAR 2 billion over the medium term.
Health is allocated a total of ZAR 848 billion over the MTEF. These allocations include ZAR 11,6 billion to address the 2023 wage agreement, ZAR 27,3 billion for infrastructure, and ZAR 1,4 billion for the NHI grant over the same period.
