Cape Chamber's Commentary on the National Budget Speech

As others have dealt with the numbers and tax changes more extensively, i.e., the quantitative (cost/financing) side of Budget 2024, this commentary will assess more the (benefit/effectiveness) qualitative side, inclusive of the consistency between the MTBPS 2023 of 1 November 2023 and the SONA of 8 February 2024.

Alignment between the three (if realised) indicates both understanding of the challenges and issues confronting our country, the appropriate remedies, and its structured commitment to deliver these within a reasonable timeframe.

The MTBPS aimed to address four key objectives:

• Reconfiguring the state for greater efficiency with zero tolerance for waste and corruption.
• Strengthening jobs-rich and tax revenue enhancing economic growth 
• Stabilising debt and debt service costs via fiscal consolidation, noting that debt service costs reportedly currently take up some R16 of very R100 of government expenditure.
• Protecting vulnerable households 

As this lies at the core of South Africa’s inexorable economic deterioration, disappointedly no clear relationship between the MTBPS of 2023, Budget 2024 and the SONA could be found, although ironically, the stated intention in the Budget Speech over the last 30 years were to restore both social and economic justice.

As regards the reconfiguration of the state, there is no doubt that overall South Africa is a better place than 30 years ago, but the socioeconomic deterioration over the last 15 years due to the gradual collapse of government services has negated many of the stated intentions and actual results up to around 2010.

Nonetheless, in the Budget Speech, apart from references to fiscal discipline, remedial steps at Eskom and Transnet, a multipronged approach to municipalities as the coalface of service delivery, not much other information was provided. However, little detail was provided on measures to improve the performance of South Africa’s municipalities. Much of this reform will require an improvement in the political landscape and the ethics of democratically elected representatives and senior public servants, as well as institutional reforms in the way water and electricity infrastructure is funded at municipal level so that surpluses from the sale of water and electricity are not diverted away from water and electricity infrastructure maintenance to other municipal services. 

However, the Budget Speech incorporates a clear acknowledgement of poor economic growth performance due to “structural constraints”, with Eskom, Transnet, public infrastructure delivery and public procurement listed as the main culprits.  

Furthermore, aiming to counter the dismal overall economic growth story, a number of initiatives were listed, amongst others visa reforms, telecommunications, an increase in the limit for renewal energy projects to 30 megawatts, the independent review of Eskom’s coal-fired power stations, a R2 billion Rand initiative for smart meters, third party access to the freight rail network and encouragingly a greater role for the private sector, but within a structured and more streamlined public-private sector framework, hopefully also resistant to unsavoury practices. 

Added to this, is support for producing new energy vehicles, building on the relevant White Paper aiming to achieve a dual platform for ICE and electric vehicles by 2035. Also, the new Public Procurement Bill to achieve both transformation and value for money, a Climate Change Response Fund and intended investment by Government of more than R943 billion in public infrastructure. 

Public and private sector investment as a proportion of GDP stood at 14.2% in 2022 and this needs to effectively double to reach the National Development Plan target of 30% of GDP by 2030. A variety of measures are underway to improve private sector investment in infrastructure, including streamlining the Public Private Partnership regulations,  forming a PPP Centre of Excellence (by bringing together the PPP unit in the Government Technical Advisory Centre and the Infrastructure Fund housed in the Development Bank of Southern Africa), improving the operations of the Infrastructure Fund and strengthening its capacity to structure blended finance products, the Budget Facility for Infrastructure which will improve multi-year budgeting for large infrastructure projects. 

As to the stabilising debt and debt service costs via fiscal consolidation and enhancing the fiscal space, the Budget Speech does a much better job. Clear steps were announced to deal with the debt service costs, inter alia by the reform of the Gold and Foreign Exchange Contingency Reserve Fund (GFECRA). This includes a drawdown of R150 billion over the MTEF to help service debt costs, with total debt intended to peak at 75.3% of GDP in 2025/26 and overall government gross borrowing to R428,5 billion in 2026/27, allowing some protection of core services.

New tax measures include:

• Not adjusting tax brackets, rebates and medical aid tax credit for inflation creep.
• Increasing excise duties on alcohol, tobacco and vaping devices, inclusive of steps to reduce illicit tobacco and gold transactions.
• Increasing environmental carbon and carbon fuel taxes.
• A global minimum corporate tax rate to limit tax competition.

Towards protecting vulnerable households, steps to increase the fiscal space also allowed:

• A reversal of earlier intended cuts to the salaries of teachers, doctors and nurses and other critical services., resulting in over the MTEF R25,7 billion extra to the Education sector, R1.6 billion rising R2 billion over the MTEF to the Childhood Development Grant and a total of R848 billion to Health.  The latter includes R1.4 billion for various enabling elements of the NHI.
• Access to public transport for low-income commuters is to be enhanced via the rail recovery programme of the Passenger Rail Agency, due to increase the number of passengers on Metrorail from 15.6 million in 2022/23 to an estimated 48,6 million by 2026/27.
• Support to resettled farmers via the Land Redistribution and Tenure reform has been allocated R6 billion over the MTEF. 
• An increase in a variety of social grants and steps to improve the Covid-19 Social Relief of Distress Grant.
• R16.4 billion for employment programmes and R7.4 billion for the Presidential Employment Initiative.
• A total of R765 billion to the Peace and Security cluster.
• R628 billion to the Department of Justice and Constitutional Development for the implementation of FATF  and the State Capture Commission recommendations, bringing total funding for these efforts to R2.3 billion.
• R2.9 billion to combat illegal mining and other priority crimes.

In more or less Minister Gondongwana’s own words, this budget intends to make the best out of limited resources, which includes:

• Supporting economic growth.
• Reducing the growth of government debt and the cost of debt.
• More funding for core services, providing for the social wage and preserving infrastructure budgets. 

In closing, judging by the cautiously optimistic market response to Minister Godongwana’s budget speech with its attention on debt management and economic growth prospects, it supports the contention that the quantitative (cost/financing) side of the budget is probably the best that can be accomplished, with big questions around the (benefit/effectiveness) qualitative fiscal/expenditure aspects remaining.

Source: Public Sector Business Environment Portfolio Committee