Budget Speech
Malcolm Libera
·21 Feb 2024
Finance Minister Enoch Godongwana delivered the 2024 National Budget Speech on Wednesday, 21 February.
The budget touched on many points and topics, including the country’s current economic standing, growth estimates, the massive debt servicing costs, heightened sin tax proposals and the extension of the social relief grant, among others.
South Africa’s economy faces a tipping point, with growth estimates from analysts and researchers pointing downwards.
Continual rolling blackouts are showing little sign of stopping, while port and rail inefficiencies and a high sovereign credit risk remain threats to economic growth in the country, the minister said.
The fiscus
Compared to a year ago, the budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP.
The higher budget deficit means that debt-service costs in 2023/24 have been revised higher by an additional R15.7 billion to R356 billion.
Debt-service costs will absorb more than 20% of revenue, said Godongwana.
“To put this into perspective, spending on debt-service costs is greater than the respective budgets for social protection, health, or peace and security,” he said.
Debt will now peak at 75.3% of GDP in 2025/26.
For this year’s budget, Godongwana said that the 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.
“We estimate real GDP growth of 0.6% in 2023. This is down from 0.8% growth estimated during the 2023 MTBPS,” said the minister.
He said the revision is due to weaker-than-expected outcomes in the third quarter of 2023, particularly in household consumption and fixed investment.
He added that growth is projected to average 1.6% between 2024 and 2026.
“The growth outlook is supported by the expected easing of power cuts as new energy projects begin production and as lower inflation supports household consumption and credit extension,” said Godongwana.
Overall, a net reduction of R80.6 billion in non-interest expenditure is being implemented over the medium term.
At the same time, revenue has been revised up by R45.6 billion over the medium-term, relative to 2023 MTBPS.
Here are the biggest winners and losers from the mid-term budget:
Winners
Bond investors
Although South Africa is facing a challenging fiscal situation, the Finance Minister has attempted to stabilise the country’s debt at lower levels than previously estimated.
Godongwana said this would help reduce debt-service costs and the amount the government needs to borrow from investors to fund its spending plans.
Godongwana aims to pull this off by tapping massive paper profits on the country’s gold and foreign exchange reserve account to the tune of R150 billion.
Public sector workers
President Cyril Ramaphosa’s government will boost spending by R251.3 billion to make sure the salaries of teachers, doctors, nurses and police are fully funded.
It also set aside R7.4 billion in 2024/25 for the presidential employment initiative as the country continues to fight unemployment running above 32%.
Electric-Vehicle manufacturers
From 1 March 2026, producers of electric vehicles in South Africa will be able to claim 150% of qualifying investment spending to boost the country’s transition to new energy transportation.
Grant recipients
The government has provisionally allocated funding for the social relief grant it started paying the unemployed during the COVID-19 pandemic until March 2027.
Updated increases in social grants are as follows:
- The old age grant will go up from R2,085 to R2,185;
- The old age grants for those over the age of 75 will increase to R2,205;
- Grants for war veterans increase from R2,105 to R2,205;
- Disability grants go up to R2,185;
- The Foster care grant increases to R1,175;
- Care dependency grants rise from R2,085 to R2,185; and
- Child support grants go up to R525.
‘Basic Income Grant’ to stick around until 2027
Losers
Taxpayers
Godongwana will boost tax revenue by R15 billion, though much of this will be done quietly.
Rather than raising income tax rates, he won’t adjust personal tax brackets for inflation, which the government expects to run at 4.9% this year.
Bracket creep means that as salaries increase to keep up with the rising cost of living, workers get pushed into higher tax brackets and end up handing more over to the government.
Rebates and medical tax credits also won’t be adjusted for inflation.
How much you will be taxed in South Africa in 2024 – based on what you earn
Rooftop solar
The 2024 Budget passed by without mentioning extending the rooftop solar rebate for individuals, marking the end of the line for the tax break announced last year.
During the 2023 budget, Godongwana announced the solar tax rebate for individuals, offering up to R15,000 rebates for individuals looking to install new solar panels in the country.
As per Treasury’s initial announcement,the rebate for individuals will end on 29 February 2024.
Goodbye rooftop solar tax breaks in South Africa
Smokers and drinkers
The finance minister plans to lift excise duties on alcoholic drinks by between 6.7% to 7.2% for 2024-25.
- A can of beer increases by 14 cents;
- A can of a cider and alcoholic fruit beverage goes up by 14 cents;
- A bottle of wine will cost an extra 28 cents;
- A bottle of fortified wine will cost an additional 47 cents;
- A bottle of sparkling wine will cost an extra 89 cents; and
- A bottle of spirits, including whisky, gin or vodka, increases by R5.53.
He’ll also raise duties on cigarettes by 4.7% and by 8.2% for pipe tobacco and cigars.
- A R9.51 increase for cigars;
- A 97 cent increase to a pack of cigarettes and
- An extra 57 cents for a pipe of tobacco.
Additionally, Godongwana noted an increase in the excise duty on electronic nicotine and non-nicotine delivery systems, known as vapes, to R3.04 per millilitre.
Tax hikes for lightbulbs, plastic bags, cigarettes and alcohol in South Africa
Multinational corporate tax dodgers
The government will implement a global minimum corporate tax, with multinational corporations subject to an effective rate of 15% regardless of where the profits are located.
Transnet
The struggling state-owned operator of the nation’s ports and freight rail gets no new money beyond debt guarantees of R47 billion that were already granted.
Like Eskom, the guarantee comes with conditions.
These conditions require Transnet to focus on its core activities and for the entity to introduce private-sector partnerships, said Godongwana.
He added that this will improve Transnet’s sustainability and support the implementation of the roadmap.
Private sector to the rescue
Eskom
The embattled electricity utility, whose shortcomings cause daily power cuts handicapping the entire economy, will have its government aid cut by R4 billion over two years for failing to sell the Eskom Finance Co. by March 2024 as agreed.
However, Godongwana added that the government would be introducing a new R2 billion conditional grant over the medium term to fund the rollout of smart prepaid meters.
“This will begin with municipalities that have been approved for debt relief,” he said.
Municipalities look to Treasury for Eskom debt relief
Reporting with Bloomberg
Read: Goodbye rooftop solar tax breaks in South Africa
