Economist says Godongwana faces tough choices ahead of budget speech

2 weeks ago

As the date for South Africa’s National Budget Speech approaches, all eyes are on Finance Minister Enoch Godongwana, who is tasked with navigating the country through challenging economic waters. With the speech scheduled for February 21, expectations are high for measures that will address the nation’s economic woes, including the challenges of inflation and soaring interest rates.

In his medium-term budget policy statement (MTBPS) last November, Minister Godongwana emphasised the government’s commitment to supporting social protection and managing the wage bill while keeping the fiscal deficit in check.

The goal, he reiterated, is to maintain the progressive nature of the tax system while ensuring financial stability.

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Focus of strategies

Against this backdrop, the upcoming Budget Speech is anticipated to focus on strategies for boosting public finance revenue and kickstarting economic recovery. Taxation is likely to feature prominently as a tool that government is likely going to resort to, to generate additional revenue streams.

Commenting on the forthcoming budget, Frank Blackmore, an economist at KPMG, highlighted the critical importance of achieving sustainable public finances.

He noted the challenges posed by significant country expenses such as the public wage bill, debt repayments, and social protection, which together consume a substantial portion of the budget.

“It’s so important for South Africa to reestablish sustainable public finances and sort of steady the ship. The credibility of the whole budget process rests on it,” he said.

Public spending

Blackmore emphasised the need to optimise spending to foster economic growth and address pressing issues such as infrastructure maintenance and service delivery.

 He suggested the focus be on restraining government spending rather than increasing tax rates, with particular attention to targeted capital expenditure to stimulate future growth.

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“After costs, the public wage bill – which is around 30% of the budget – debt repayment costs which make up around 18% of the budget and a further 18% going to social protection, we only have about a third of the budget left to pay for everything else – such as service delivery, fixed capital infrastructure, maintenance, etc.

“And that is not accounting for money lost through corruption and mismanagement along the way. So its vital we optimise the money left after these big expenditure items such as the public wage bill, debt repayment and social protection in order to allow the economy to progress and achieve a higher level of economic growth,” he said.

Service delivery

“We know that consumers – at this point of facing a high cost of living crisis, high inflation, high-interest rate – businesses are facing similar headwinds too, brought on by both international events but at the same time, we are all surrounded by signs of government failure – load shedding, infrastructure deterioration, insufficient public service delivery and that all results in additional costs being levied on our economy or productivity losses that we get to suffer here.

“So, it’s not going to be too easy for government to increase the tax rate in this budget. I think the focus will have to be more on where the expenditure can be restrained in order to re-establish  sustainable public finances,” he concluded.