The slowdown in the regional economy (and the specific hardships of sectors such as mining) has resulted in lower-than-expected tax revenues, particularly lower corporate tax collections. Compared to the 2023 budget, tax revenue collection for the current financial year (2023/24) is expected to be a significant shortfall of R56.8 billion, with a further shortfall of R121.4 billion expected over the next two financial years.18 Given China's slowing growth, the tax surpluses previously seen from mining companies are unlikely due to falling commodity prices.
In response to the identified shortfall, the National Treasury prior to the MTBPS had already issued cost containment guidelines to government departments. The minister also announced a downward revision of spending by R21 billion. A further R133 billion in spending cuts are planned over the next two financial years.19 Adjustments are being made to prioritize social wages, spending on health and education, and social protection (e.g. extension of the COVID-19 Social Distress Relief Grant).20
Overall, public finances are weakening. The budget deficit is now expected to increase to his 4.9% of GDP, up from an estimated 4% in February 2023. This means that total debt is expected to increase from his R4.8 trillion in 2023/24 to R5.2 trillion in 2024. Total debt is expected to stabilize at a high level of 77.7% of GDP, exceeding R6 trillion in 2025/26. This compares unfavorably with his 2023 budget, which had a projected stability rate of 73.6% for the same year.twenty one Public debt costs also increase as increased financing needs are met through debt financing. Debt costs as a percentage of revenue are expected to increase from approximately 18% to 22.1% in 2026/27, the second fastest growing rate. Following learning and culture, expenditure items will increase over the medium term until 2026/27.twenty two
As the Treasury seeks to stabilize public finances, ministers have set out key action items to unlock much-needed growth and, in turn, address the many social and development issues facing the country. As an example, the Treasury remains committed to pursuing fiscal policies that support debt stabilization and rapidly rising debt servicing costs. The latter is rapidly crowding out other areas of spending, including social spending. At the same time, taking on new debt has become much more expensive. While this will not directly improve growth prospects, it will free up targeted social spending and public investment, maintain macroeconomic stability by lowering fiscal and economic risks, and foster investor confidence. can do.
The second action item proposed by the Treasury is to focus on improving the efficiency of spending public resources. This includes reviewing the structure and size of the state in line with President Cyril Ramaphosa's policies. state of the union address dedication. Among other things, we aim to streamline departments and programs over the next three years to address executive compensation and, importantly, duplication and duplication of duties in state portfolios. To this end, it is necessary to review the nation's capacity and capabilities while eliminating corruption and wasteful spending.
A third key action item, and one of the most important areas of focus in the medium term, is opening up investment in infrastructure to stimulate economic growth. Developing countries, which allocate around 30% of their GDP to infrastructure development, are also among the fastest growing economies.twenty three south africa national development planwas announced in 2012 and aimed for gross fixed capital formation (GFCF) spending to reach 30% of GDP by 2030, with public sector investment accounting for one-third of this.twenty four However, South Africa's infrastructure investment has averaged only about half of this 30% target since 2012, with underinvestment in areas such as energy, transport and water leading to emergencies in the case of power and logistics. . The MTBPS highlights the government's commitment to strengthening infrastructure delivery by increasing both the quantity and quality of infrastructure. This includes focusing private sector financing on large-scale projects through the creation of co-investment mechanisms and the implementation of recommendations from a review of the Public-Private Partnership Framework (PPP). This includes establishing institutions to support financing and infrastructure development.
Finally, and most importantly, the Ministry of Finance is committed to continuing to advance economic structural reforms, particularly in the most urgent areas: power and logistics. The economic costs of failure and inefficiency in these sectors have increased over the past year. This is partly due to lack of investment in aging infrastructure, but also due to mismanagement, corruption, and even theft. Last year's rolling blackouts are estimated to have cost the country between R400 billion and R600 billion. And it is estimated that 14 years of systemic power outages have cost the country more than R3 trillion.twenty five It is estimated that approximately 5% of gross domestic product (GDP) was lost in 2022 due to poor railway performance.26 Port inefficiencies result in additional costs and delays, with South African ports ranking among the world's worst performing ports in this respect. Power sector reforms, including deregulation of private power generation and reforms to encourage private investment, are expected to add more than 11 GW of renewable energy sources to help curb the power crisis in the medium term. 2023 is expected to see record levels of load shedding, power system improvements and significant private investment to curb outages. And given the scale of the crisis in the logistics sector, industry-wide reform is needed.
The good news is that the crises in both sectors have prompted long-overdue comprehensive reforms that are essential to putting the economy back on track for sustainable, inclusive and long-term growth. The bad news is that many risks to a better economic outlook still exist, and addressing them individually will not be enough.