Watch Finance Minister Enoch Godongwana develop the 2024 Budget live on Moneyweb on Wednesday 21st February at 2pm.
South Africa's Finance Minister Enoch Godongwana is scheduled to table his annual budget on Wednesday ahead of an election that polls show will deprive the ruling African National Congress of a parliamentary majority for the first time in 30 years.
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As the Godongwana Party seeks to gain support from voters ahead of the May 29 elections, it faces pressure from investors to stabilize public debt and curb spending, and from the ANC to seek welfare subsidies and medical care. At the same time, they are facing pressure to increase access to.
Important points to note are:
1. Debt stabilization
The Treasury's three-year fiscal framework currently assumes the debt-to-gross domestic product (GDP) ratio will peak at 77.7% in 2025-26. That goal is increasingly at risk. It only takes one more shock for the ratio to rise above the precarious 80% level, creating a revenue shortfall of 45 billion rand ($2.4 billion), according to Goldman Sachs international economist Andrew Matheny. I predict that. “Debt stabilization, which has been the Treasury's consistent outlook for the past 15 years, has proven to be quite elusive,” he said.
2. New taxes
Mr Godongwana revealed plans to raise an additional R15 billion in revenue in November's budget update, and is expected to announce where that money will come from. Collecting additional taxes from already burdened consumers is not easy, while corporate taxes are being squeezed as the product boom wanes. One option would be to raise value-added tax, currently levied at a rate of 15%, but that would anger ANC supporters and allied trade unions.
3. Contingency reserve fund
The Treasury is considering using some of the approximately R500 billion in paper profits from reserves to replenish the coffers. The account is controlled by the central bank and requires selling some or all of the underlying assets (mainly gold and foreign exchange reserves) to make a profit, which can upset investors depending on how it's done. . If accounts are tapped, “there must be strict and reliable conditions that make it clear that the function of foreign exchange reserves is to protect the country from international crises and maintain credibility in the international financial system,” Bisisiwe said. – CEO Mavuso said. He is a member of the lobby group Business Leadership South Africa. “This is not a free pot of money for government relief.”
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4. Transnet Relief
Transnet, which operates South Africa's freight rail system and major ports, has been plagued by operational and financial problems that are curbing exports and hurting the economy. Last year, Godongwana announced it would receive R47 billion in debt guarantees to help it survive the budget deadline. The minister said in January that the Treasury was keeping a close eye on Transnet but had not taken any steps to provide further support. Isaac Matshego, senior economist at Nedbank, said the government may consider Transnet too big to fail and phase in additional funding over the next two financial years. He estimates that about R50 billion could be generated in the future. Goldman's Mr. Matheny doesn't expect the budget to provide for Transnet, but he does expect a bailout could be in place within the next few years.
5. Welfare subsidies
The government will first introduce a temporary welfare subsidy of R350 per month to cushion unemployed people from the effects of the coronavirus pandemic, with provisions set to run until the end of March next year. The ANC favors making the benefits permanent, but the National Treasury says it cannot pay them unless alternative sources of funding are found. President Cyril Ramaphosa said there was a case for maintaining the subsidy even within South Africa's fiscal constraints. “It's going to be difficult politically to get rid of that,” Matheny said. He added: “I don't think you're going to take it politically before the election.”
© 2024 Bloomberg
