Finance Minister Enoch Godongwana walked a tightrope when he juggled public finances in an effort to support the economy, stabilise debt and extend the R350 grant.
Tabling his medium-term budget policy statement (MTBPS) on Wednesday, Godongwana painted a dire picture of the state of public finances.
“The economic outlook over the medium term remains weak, reflecting the cumulative effect of power cuts, the poor performance of the logistics sector, high inflation, rising borrowing costs, and a weaker global environment,” he said.
The budget deficit has increased by R54.7 billion compared to the 2023 budget estimates.
“This reflects lower revenue performance, higher wage bill costs and higher projected debt-service costs,” he said.
The government was projecting a deficit of 4.9% of GDP compared to the previous estimate of 4%.
“Under these circumstances, measures to stabilise public finances and reform the economy to generate higher growth are essential. We recognise that alongside these measures, our most effective way of funding the government is through an efficient tax administration and by broadening the tax base,” he said.
Government spending has exceeded revenue since the 2008 global financial crisis.
“These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion per year over the medium term.
As a result, gross debt rises from R4.8 trillion in 2023/24 to R5.2 trillion in the next financial year. By 2025/26, it will exceed the R6 trillion mark.”
Government debt was expected to stabilise at 77% of the GDP by 2025/26.
The debt-service costs would increase from 20.7% in 2023/24 to 22.1% in 2026/27.
“The cost, or interest of this debt, for next year alone, amounts to around R385.9 billion. Over the medium-term expenditure framework, interest costs amount to R1.3 trillion,” Godongwana said.
In an effort to avoid a fiscal crisis, the government has taken decisions to embark on spending reductions and reprioritisation while also taking concrete steps to support growth.
“None of these decisions are taken lightly. They are taken with the short-and long-term viability of public finances in mind, and in the interests of balanced and inclusive growth,” the minister said.
Godongwana announced that the structure and the size of the state will be reconfigured in line with President Cyril Ramaphosa’s commitment in his State of the Nation Address earlier this year.
“A joint plan to review government departments, entities and programmes over the next three years is being prepared.”
He announced that spending has been revised down by R21bn with further reductions of R64bn in 2024/25 and R69bn in 2025/26.
However, the government will still allocate funds to departments such as health, education and police.
“Additional funding of R24 billion this year and R74 billion over the medium term will be used to fund the 2023/24 wage increase and the associated carry-through costs in these sectors.”
Godongwana also said R34bn was allocated to extend the R350 social relief of distress grant by another year until 2025.
“Over the medium term, a provisional allocation is retained while a comprehensive review of the entire social grant system is finalised.”
He announced that R372 million has been added to the municipal disaster response grant and R1.2bn has been added to the municipal disaster recovery grant to cover the repair and rehabilitation of infrastructure damaged by flooding in February and March.
“The National Treasury is making progress towards developing a disaster risk financing strategy which will, among others, enhance existing risk financing instruments.”
DA MP Dion George said the MTBPS was disappointing.
“It was a budget from the ANC that does not care about South Africans,” George said.
He said the minister spoke about extending the R350 grant, which his party would support, but there was no long-term plan or funding.
“The minister could have cut taxes, put a levy on fuel to bring down the price of petrol and transport costs and could have expanded the zero Vat-rated food basket. He never mentioned the cost of living once. This is an indictment of a government that is out of touch,” he said.
EFF deputy leader Floyd Shivambu said: “This is an austerity budget. There is no responsiveness to the demands and aspirations of our people. This comes as a result of a government failing to expand the revenue base.
We have a directionless government. They simply refuse to acknowledge the fact that they are failing the South African economy.”
IFP deputy leader Mzamo Buthelezi said the MTBPS did not inspire confidence in the future and prospects of the country.
GOOD party secretary general Brett Herron said they were pleased to learn that despite the budget cuts, social services would not be affected and despite the revenue shortfall, there would be investment in infrastructure.
ANC secretary-general Fikile Mbalula said the MTBPS struck the right cords.
“We did say that there should be no austerity but cushioning the poor and at the same time ensuring we remain focused on infrastructure projects and ensure education, health and social services are equally protected. With all the challenges we face, we think this strikes the right balance in terms of challenges we face,” Mbalula said.
Cape Times