BUDGET WRAP | No new taxes, bailouts for SOEs as govt taps contingency reserves for R150bn

That's a wrap from the News24 Business team at this year's Budget. 

For a summary of the key takeaways from Godongwana's address, read News24's budget in a nutshell.  

For an explanation of what Treasury wants to do with SA's Gold and Foreign Exchange Contingency Reserve Account to pay down debt, read News24's summary here. 

To calculate how the Budget will impact you, try out our tax calculator below. 

ANC alliance partner Cosatu has slammed what it called an "underwhelming" budget and "bean counting exercise". 

"Treasury ... failed to seize the moment to respond decisively to the myriad of challenges workers, society, the economy and the state are facing," the labour federation said. 

"The reason we are in a crisis is because the economy is not growing and unemployment remains dangerously high."

Cosatu said it would have wanted more information on how struggling SOEs could be revived - including Metro Rail, the Post Office, the Postbank, Denel and the SABC. 

"Retrenching 6 000 workers at the Post Office is not a plan," it said

The GOOD Party says it had hoped that Godongwana would provide outline a coherent economic growth plan, but only saw "tinkering around the edges" of SA's economic malaise. 

"Adding this or that percentage point to each of last year’s line items amounts to applying sticky plasters when open heart surgery is indicated. The structure lacks dexterity, and ties Minister Godongwana’s hands."

Prof Raymond Parsons of North-West University Business School says that while Godongwana gave a "realistic" assessment of the state of SA, far bolder steps are needed to grow the economic pie.

"Economic growth in South Africa has also been too low for too long. A major threat to the fiscal balance has been the lack of adequate tax revenues as a result of persistent low growth. The narrative around growth must therefore be strengthened and prioritised," he says. 

"In short, the choice remains between real economic growth with its advantages, or the yoke of low growth with its creeping socioeconomic costs and welfare dependency."

Business Leadership South Africa says the budget is "realistic" and "commendable in an election year".

"BLSA congratulates Minister Godongwana for a solid budget with a realistic approach to addressing the country’s core problems while maintaining a credible path to reducing our sovereign debt."

CEO Busisiwe Mavuso however warned that the government must not start to view withdrawals from the Gold and Foreign Exchange Contingency Reserve Account as a "free money pot for government bailouts".

Mavuso reiterated that National Health Insurance - which received a paltry R1.4 billion - was "unworkable"

"There is no capacity or funding to implement it and it will be embroiled in litigation on several fronts including its constitutionality."

Mbai Rashamuse of PwC Southern Africa explains that while Godongwana did not announce any take hikes, he indirectly raised taxes by not making inflationary adjustments to private income tax (PIT) brackets.

"Keeping the PIT brackets unchanged alongside inflation adjustments to workers’ income results in a component of the labour force moving into higher tax brackets and therefore paying more PIT. This increases the burden of taxes on the average South African."

Read News24's summary of the minister's tax announcements below.  

A spokesperson for Mmusi Maimane's Build One South Africa criticises Godongwana for failing to "redirect the government's spending intentions towards job creation and economic growth".

"Less than 1% of our country's entire budget (R22.2 billion) is allocated for job creation. This is woefully inadequate to address our country’s most pressing issue – the creation of new jobs."

Elna Moolman of Standard Bank says it would have been more prudent for the state to wait to legislate exactly how it can and will use the GFECRA funds before announcing the withdrawal. 

"We would’ve preferred the GFECRA only being used once its use is legislated, to ensure that future use will remain prudent," she says.

Despite this "disappointment" and persistent risks to spending and revenue forecasts, Moolman says the fiscal prognosis is "at least somewhat better than investors expected".

The DA has strongly criticised Treasury's plan to withdraw R150 billion from the Gold and Foreign Contingency Reserve Account, calling it a "frantic response to South Africa’s self-inflicted fiscal constraints".

"The DA has already indicated that we strongly oppose this desperate bailout measure," the party says. 

"Liquidating reserves for short-term gain will increase inflationary pressures, undermine the credibility of monetary policy, and signal fiscal irresponsibility to international markets."

The first reactions to the budget have started to trickle in. 

Angelika Goliger, EY Africa chief economist, describes it as "kind to South Africans", with "no new major tax increases, the fuel levy remaining flat, and a one-year extension in the SRD grant".

Goliger says the key talking point is the R150 billion withdrawal from the Gold and Foreign Exchange Contingency Reserve Account. 

"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."

SA won't be able to keep dipping into the account year after year, however. 

Carol Paton unpacks how the finance minister's address compares with some of the austere promises made in his medium term budget policy statement last year. 

Carol Paton unpacks how the finance minister's address compares with some of the austere promises made in his medium term budget policy statement last year. 

To get an overview of the key takeaways from Godongwana's address, have a look at Helena Wasserman's budget in a nutshell below.  

For an explanation of how Treasury intends to tap SA's Gold and Foreign Exchange Contingency Reserve Account to pay down debt, read this summary from Renée Bonorchis.

The minister ends with a quote by former President Nelson Mandela. 

"I have walked that long road to freedom. I have tried not to falter; I have made missteps along the way. 

"But I have discovered the secret that after climbing a great hill, one only finds that there are many more hills to climb. 

"I have taken a moment here to rest, to steal a view of the glorious vista that surrounds me, to look back on the distance I have come.

"But I can only rest for a moment, for with freedom come responsibilities, and I dare not linger, for my long walk is not ended."

The minister is now speaking to SA on the global stage - including SA's G20 presidency in 2025. 

"South Africa’s G20 presidency is an opportunity for us to advance the most pressing economic, developmental, and financial issues that face poor and developing countries," he says.

"As President Ramaphosa rightly stated in his State of the Nation Address, our goal is to 'place Africa’s development at the top of the agenda when we host the G20 in 2025'".

Godongwana says the country is working on the "necessary allocations and identification of funds" to make the G20 presidency a success, without providing more details. 

The minister says that, in the coming financial year, 10 000 new police recruits will be trained.

"We are doing the work, we are doing the work," he repeats to applause. 

Meanwhile, the minister says that R628 million has been allocated to the Department of Justice and Constitutional Development for the implementation of recommendations made by FATF - the organisation that greylisted South Africa last year - and State Capture Commission recommendations.

In the first big applause line of the night, Godongwana announces a R100 increase to the old age, war veterans, disability and care dependency grants.

The foster care grant will increase by R50, while the child support grant is going up by R20. 

"These improvements will be within the current fiscal framework," he says. 

The police and defence will be getting an additional R350 million to support their work at the elections.

Another R200 million will be allocated for political party funding as political parties prepare for the general elections.

The minister now turns to spending.  

"Our pie is not growing fast enough," he says. 

His first announcement is another R25.7 billion for the education sector over the medium term. This will mostly go to wage increases.  

Health, meanwhile, will get another R11.6 billion to address the 2023 wage agreement.

National Health Insurance, meanwhile, will only be getting R1.4 billion. 

The minister now announces a global minimum corporate tax to "limit the negative effects of tax competition".

"Multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15 per cent, regardless of where their profits are generated," he says. 

Godongwana says the proposal could yield around R8 billion in extra tax in three years time. 

There will, however, be no increase in the general fuel levy for the year ahead.

"This will result in tax relief of around R4 billion," says Godongwana, which he described as "money back in the pockets of consumers". 

The minister says tax measures that will raise R15 billion in 2024/25 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 says. 

Sin taxes on tobacco and alcohol will also increase, as will taxes on e-cigarettes. 

As expected, Godongwana says that tax revenues have underwhelmed. 

"The weak performance of our economy has resulted in a sharpdeterioration in tax revenue collection for 2023/24. At R1.73 trillion, tax revenue for 2023/24 is R56.1 billion lower than estimated in the 2023 Budget," he says. 

The says the shortfall is largely due to the decline in corporate profits and revenue from taxes on mining.

The minister praises the Public Procurement Bill, which some opposition parties have slammed. 

"The bill provides for transformation measures through set asides, pre-qualification and advancement of persons disadvantaged by unfair discrimination," he says.

"These measures would be applicable to specified categories of persons including small enterprises owned by black people, black women, black youth, black people with disabilities, and enterprises within a particular geographical area including enforcement of transformation through the BBBEE level status."

Turning to SA's important car making sector, Godongwana says the state wants to help the country transition from making petrol and diesel cars to electric vehicles.

"To encourage the production of electric vehicles in South Africa, government will introduce an investment allowance for new investments, beginning 1 March 2026," he says. 

"This will allow producers to claim 150 per cent of qualifying investment spending on electric and hydrogen-powered vehicles in the first year."

As for Transnet, Godongwana says that third-party access to the freight rail network will be introduced by May 2024.

"In ports, 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."

He again noted that the state has provided Transnet with a R47 billion guarantee facility - something that he already announced last year. 

The minister has now moved on to the never ending problem of load shedding. 

"To promote further investments in renewable energy, this budget proposes an increase in the limit for renewable energy projects that can qualify for the carbon offsets regime, from 15 megawatts to 30 megawatts," he says. 

He says he hopes that by a combination of private investment in new energy projects, rooftop solar and "improvements in Eskom’s generation fleet" load shedding will reduce.

Govt will also introduce a new R2 billion conditional grant over the medium term to fund the rollout of smart prepaid meters. 

The minister announces that, as expected, Treasury will use the central bank’s gold and foreign exchange contingency reserve accounts. 

"We will draw down R150 billion of the GFECRA (Gold and Foreign Exchange Contingency Reserve Account) balance once we have ensured that sufficient buffers are available to absorb exchange rate swings andthe solvency of the Reserve Bank is not compromised," he says. 

The minister says that that debt-service costs in 2023/24 have been revised higher to a whopping R356 billion. 

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

Debt will now peak at 75.3 per cent of GDP in 2025/26. 

The finance minister says that, despite an improved global outlook for 2024, South Africa’s near-term growth remains "hamstrung by lower commodity prices and structural constraints".

"We estimate real GDP growth of 0.6 per cent in 2023. This is down from 0.8 per cent growth estimated during the 2023 medium term budget statement". 

Risks to the domestic outlook include "persistent constraints in electricity supply, freight rail and ports; and a high sovereign credit risk".  

Godongwana has started his address, says it is a great privilege to present the final budget of the current - 6th - administration. 

For a reminder of what Godongwana announced in his Medium-term Budget Policy Statement last year - including plans to announce a R15 billion tax hike - read News24's summary. 

As Carol Paton writes in her scene-setter, revenue and expenditure numbers to the end of December show that tax income was lower than anticipated while government spending was higher. 

As a result, government is likely to completely miss its budget deficit and debt-to-GDP targets. 

"As long as debt service costs rise faster than the economy grows, it will be difficult to bring debt under control. And the larger the debt becomes, the greater the risk investors attach to their lending, demanding a premium which now has the government paying a whopping 12% interest for long-term debt," she writes.  

"To manage this, Treasury has used only one tool: cut spending. But here's the problem: deep cuts have already been made to public spending over a sustained period."

Finance Minister Enoch Godongwana will deliver his third Budget at the Cape Town City Hall this afternoon at 2 p.m.

As Renée Bonorchis sets out in her preview, the minister is expected to speak about the basic income grant, a R15 billion tax increase, cost-cutting measures, how the state will tackle SA's ever-rising borrowings, and bail-outs for Eskom and Transnet. 

"He's also going to have to carefully explain why the government has missed its revenue and expenditure targets, which were set just three and a half months ago, and how government's continued fiscal slippage will be addressed," she writes. 

Godongwana may also say something about a potential Treasury plan to raid the central bank’s gold and foreign exchange contingency reserve accounts. 

Read Renée's article at the link below.