How Godongwana’s mid-term budget will impact households across SA

By Ashley Lechman

There are concerns about what the finance minister’s spending cuts and tax increases will mean for the country’s stability and, more importantly, the economic stability of citizens already buckling under the weight of the unsustainable cost of living.

AS MANY South Africans run out of money before their next pay cheque, it seems the country as a whole could be running out of money as well.

This comes after Minister of Finance Enoch Godongwana tabled his Medium-Term Budget Policy Statement (MTBPS) earlier this week in Parliament and to the nation.

The CEO of Debt Rescue, Neil Roets, said he was concerned about what the minister’s spending cuts and tax increases would mean for the country’s stability and, more importantly, the economic stability of citizens already buckling under the weight of the unsustainable cost of living.

Ahead of the minister’s MTBPS, Roets sounded the alarm that the country is at risk of running out of money by March 2024, unless significant spending cuts are introduced.

He made it clear that remedial steps need to be taken or South Africa risks a fiscal disaster.

Renowned economist Dawie Roodt has echoed Godongwana’s concerns, saying South Africa is running out of money and facing a difficult time for the next five years.

“Unsurprisingly, his budget is centred around a plan of action to tackle the fiscal deficit, in an effort to compensate for the severe revenue shortfall and manage government debt that has ballooned to over 70% of GDP. The Treasury has found itself in trouble after a fall in commodity prices and a deteriorating economy due to ongoing Eskom blackouts and logistics constraints caused mainly by the country’s state-owned logistics company, Transnet,” Roets said.

These factors have eaten into the profits of companies that are consequently paying less corporate tax to the government.

Government’s expenditure had been far greater than what was pencilled in the initial 2023 budget, driven by a higher-than-expected wage hike of 7.5% for public servants.

“While the National Treasury has little option but to make cuts in government spending, experts have sounded the alarm that this will have severe consequences in terms of the delivery of crucial public services. Treasury has maintained its prudent stance of fiscal consolidation in the face of a revenue shortfall of R57bn this year and is projecting deep spending cuts of R213bn over the next four years, including 2023/24, with tax increases of R15bn forecast for the 2024/25 budget,” Roets further stated.

“I would rather see the government taking measures to fix the country’s crumbling infrastructure and finding ways to stimulate economic growth,” he says.

Impacting the most vulnerable

In his 2023 mini-budget speech, Godongwana announced cuts in the provincial budgets, though no details are yet available, which could have a devastating impact on public services.

Roets points out that the spending allocated to the public sector wages will inevitably crowd out vital spending.

He says the people who will be most impacted are the 18.2 million people in South Africa who currently live in extreme poverty, subsisting on just R760 per person per month (R25 a day).

Threats to food security

“A third of the nation is currently battling to put enough food on the table, in the face of a cost-of-living crisis, the likes of which we have never seen before. It’s deeply concerning that the government has not elevated this to the top of the country’s agenda,” Roets said.

Against this backdrop, rising inflation is the biggest threat to food security in South Africa, Roets further said.

According to Statistics South Africa, consumer inflation rose to 5.4% year-on-year in September 2023 from 4.8% in August, with the food, fuel and transport sectors being the biggest contributors.

The Pietermaritzburg Economic Justice & Dignity group (PMBEJD) reported that about 30.4 million people in South Africa currently live below the upper-bound poverty line of R1,417, and many of these are bread-winners who support family members.

The group estimated that another 13.8 million people live below the food poverty line, subsisting on just R663 per month.

“We need the government to look at the factors that hike the prices of necessities, and come up with a plan to mitigate these or we will see these figures rise and rise until soon half the nation is living below the breadline,” Roets warned, adding that far more needs to be done to protect the country’s food security and to manage food prices.

The PMBEJD holds that social grants remain a crucial safety net for many – hence the need to extend the Social Relief of Distress (SDR) grant.

Roets says that, although the continuation of and nominal increase in the R350 per month SRD grant will help one-third of the population to feed their families, it is not a realistic long-term solution.

More than 18 million people are currently included in the social welfare system, while 5.5 million people submit tax assessments, but far fewer actually pay tax.

He believes the solution lies in stimulating job creation, especially among our youth.

“When unemployment is high, social dependency rises with it,” he said.

Tax increases

The minister has opted to focus on tax increases for the 2024/25 budget – to the tune of R15bn.

This will bring in additional income, and will undoubtedly bring the government closer to making up the Budget shortfall.

The downside of this is that tax increases reduce the spending power of consumers, leading to lower growth and higher inflation.

Roets said that there are better options.

He said, “I believe there are better options, like curbing spending at all levels of government, and freezing public sector wage increases. I would like to see the government allocate more funding to economic development, such as infrastructural development for energy, water and roads, and making the necessary structural changes in terms of SOEs. Such spending could facilitate faster economic growth, and will create jobs and generate tax income over time.”

“While Godongwana has succeeded in treading the fine line between being realistic about the outlook for government revenue and curbing government spending, it remains to be seen whether he has reassured investors that the government has a workable plan to manage the debt spiral,” he added.

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