Budget 2024 Highlights

Shane Packman

On 21 February 2024, Finance Minister Enoch Godongwana delivered the annual budget speech, providing an update on South Africa’s finances.

Finance Minister Godongwana faced a challenging budget amid slow economic growth, elevated inflation and interest rates placing strain on South African households, service disruptions, and constrained tax revenue. The additional tough task was balancing spending pressures with election considerations, while simultaneously addressing the challenge of rising debt levels.

Gold and Foreign Exchange Contingency Reserve Account (GFECRA)

The gold and foreign exchange contingency reserve account (GFECRA) took centre stage in this year’s budget, as the National Treasury outlined a proposal to access the reserve account. The introduction of a reform to the gold and foreign exchange contingency reserve account will be used to reduce government borrowing and improve the South African Reserve Bank’s equity position.

The GFECRA is an account that captures gains and losses on the foreign currency reserve transactions as well as protecting the central bank from currency volatility. The GFECRA has grown to R500 billion. This move will lead to the government reigning in debt, finance the public sector wage increase and keep the budget deficit at 4.9%.

Some key aspects to consider that have affected spending potential, revenue collection and therefore, economic growth:
- Commodity prices have come down significantly in the recent tax year, reducing company profits in the resource sector and placing pressure on government tax collections.
- Prolonged power cuts and the deterioration of port and rail infrastructure continue to hinder economic growth.
- Locally and globally, economic growth has continued to be subdued. Low economic growth leads to lower tax revenues and increased requests for fiscal support.
- Unemployment remains high. Although the unemployment rate moderated to 31.9% in the third quarter of 2023 (its lowest level in three years), joblessness remains extremely high.
- Rising borrowing costs due to increased interest rates (to tackle elevated inflation) continue to place the consumer under pressure, constraining demand and therefore spending.
- While inflation has decreased to 5.3% year-on-year to the end of January 2024, it remains close to the upper end of the South African Reserve Bank’s target range, placing increased pressure on low-income tax bracket earners.
- The slow implementation of structural reforms has lowered business confidence.
- The emigration of highly skilled workers has continued this year.

Revenue, deficits, and debt to GDP according to the 2024 budget

The weak economy, decline in corporate profits and the decline in revenue from taxes on mining have brought about a sharp deterioration in tax revenue for 2023/24.

- Tax revenue collections for 2023/24 are expected to total R1.73 trillion. This is R56.1 billion lower than the 2023 budget estimate, and R0.7 billion lower than the 2023 MTBPS estimate.
- Over the medium term, revenue projections are R45.6 billion higher than the estimates of the 2023 MTBPS.
- Revenue from corporate tax suffered on the back of declining mining tax revenue caused by slowing commodity prices.
- Higher revenue collection from personal income tax has come in above expectations as earnings and employment recovered from the COVID-19 pandemic. In particular, tax from the finance sector drove strong growth in tax revenue collections.
- VAT refund payments were higher than expected due to the increased costs of doing business (including using more expensive road transport due to the inefficiencies of the rail network).
- Government debt has reached R5.21 trillion and is projected to rise to R6.29 trillion over the medium term.
- Government’s gross borrowing requirement is expected to decrease from R553.1 billion in 2023/2024 to R428.5 billion in 2026/27 given the use of the GFECTRA to reduce borrowing in the medium term.
- Similar to Eskom, the government will provide Transnet with a major debt relief arrangement of R47 billion to support the entity's recovery plan and meet its immediate debt obligations, consisting of R168 billion in capital and R86 billion in interest. This debt relief facility has certain conditions attached, which require Transnet to focus on its core activities.
- Debt-service costs are expected to rise to 5.2% as a share of GDP.
- The consolidated budget deficit is projected to narrow from 4.9% of GDP in 2023/24 to 3.3% by the end of the 2024 medium-term expenditure framework (MTEF) period.
- The debt ratio will stabilise at 75.3% of GDP by 2025/26.

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