A deep dive into Godongwana’s 'difficult' 2024 budget

“The terrain was very difficult.”

This is how finance minister Enoch Godongwana described the period leading up to the presentation of the 2024 budget last month. The National Treasury had to find money to pay down some debt but also fund the growing social wage — including a continuation of the Covid-19 grant — at a time when the commodity price boom is considered officially over and logistics weaknesses and power cuts interrupt the economy.

Speaking at the recent Think Budget breakfast forum (watch the recoding below) — a collaboration between Rand Merchant Bank (RMB) and the Sunday Times — Godongwana said tabling his second budget was different to when he was initially appointed as finance minister. It has been boosted by a commodity price boom, which helped with Treasury fund items like the R350 social relief of distress grant.

However, in the first quarter of the 2023/2024 fiscal year, load-shedding and the crisis at Transnet intensified, making it difficult to find the extra R36bn required to continue with the grant.

“What that tells you is that the revenue loss was huge for us in that first quarter. It was about R56bn. We are already entering this year from a tough position. Planning for this budget, we were in a very difficult environment,” Godongwana said.

If the National Treasury had its way, the grant would come to an end in March 2025. However, there was growing pressure from social justice movements to not only extend it beyond 2025, but to possibly use it as a springboard to a basic income grant. This was difficult to ignore as politicians and some political parties were supportive of this view.

RMB chief economist Isaah Mhlanga said the markets were surprised but supportive of the move to draw R150bn from the gold and foreign exchange contingency reserve account (GFECRA) to pay debt and reduce debt service costs.

“The intention is quite clear, to reduce debt service costs, which is the right thing to do. The other option would have been to invest in infrastructure, but you can’t get an immediate benefit. It takes time to lift economic growth. It’s a sensible thing to reduce debt service costs.”

Mhlanga said he would have loved to give the budget a score of 10 out of 10, but the Treasury was hamstrung by structural weaknesses that were not in its control. “It’s because of the constraints that lie outside what [Treasury] can do. They can manage the funding, but they can’t build railway lines, they can’t build power stations, they can’t build hospitals.”

Mhlanga said a positive development was that the Treasury was now more realistic in its revenue and expenditure estimates, unlike the decade leading to 2019 when these forecasts tended to be over-optimistic, resulting in over-expenditure.

Itireleng Kubeka, MD for Africa tax & legal at Deloitte, said the government had limited scope to increase taxes or introduce new ones. However, not adjusting personal income tax brackets for inflation was a further squeeze on South Africans who are already over-taxed. This means the SA Revenue Service (Sars) must look at other ways to help boost revenue collection.

“That forces the government to think very creatively about how to collect differently. Sars has to look at how they widen the tax base, how they increase compliance, and how they use technology for administrative efficiency. That’s where they really have to focus because there isn’t much more they can still squeeze [out of taxpayers],” she said. 

This article was sponsored by RMB.