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| Finance Minister Enoch Godongwana. (Photo: Gallo Images / Ziyaad Douglas) |
The difference between 5% and 1% is material on an elephantine scale. South Africa's economy is just in line with population growth, but the demographics of youth mean it is not fast enough to absorb new entrants into the labour market and expand the tax base. Investec chief economist Annabel Bishop said that South Africa's October Medium-Term Budget Policy Statement (MTBPS) growth forecast for 2023 was overly strong, at 0.8% year on year, with the outcome most likely to be 0.5% year on year, which will add to the upwards pressure on the gross loan debt-to-GDP ratio.
PwC projected a budget deficit of 4.9% for the forthcoming 2024/25 financial year and sees that falling to 3.9% by 2026/27. On the debt front, one vexed issue is the vast amounts that have been accumulated by malfunctioning state-owned enterprises. First National Bank’s chief economist Mamello Matikinca-Ngwenya pointed out that spending pressures had surged, pushing expenditure beyond projections from the 2023 MTBPS and the 2023 Budget Review. Debt service costs have increased by 17.1% for the fiscal year-to-date, exceeding the 14.9% 2023 MTBPS estimate. Non-interest expenditure has also risen significantly by 6.3% for the fiscal year-to-date, reflecting evident expenditure pressures.
Speaking of expenditure, Associate Professor David Warneke, a partner at BDO South Africa, said it was almost a certainty that there would be a continuation of the Social Relief of Distress grant.
South Africa's public sector wages are a contentious issue, with an annual increase of 7.5% in 2023's budget. This puts pressure on the already stretched budget, as public servant remuneration is the single largest component of government expenditure, accounting for 30% of the R2.26-trillion budget. The government may seek to avoid negotiations and propose a modest increase of around 5% to 6% to appease public servants, but concerns about the sustainability of the public wage bill, particularly when compared with international standards, remain.
South Africa has one of the highest-paid public sectors in the world, with a total wage bill 3.5% higher than the average in countries that are part of the Organisation for Economic Cooperation and Development. This makes up about a third of total government expenditure and is not performance-based, meaning increases are applied across the board. President Cyril Ramaphosa joked about signing the controversial National Health Insurance (NHI) Bill into law during his State of the Nation Address, but there has been little indication of where the funding will come from.
The fate of state-owned enterprises remains uncertain, with discussions on mergers and closures ongoing. Any decisions must balance fiscal responsibility with the need to streamline operations and improve efficiency. Given elections, it is doubtful that anything will be announced here, as it might imply job cuts.
Taxing times are also uncertain, with the minister of finance warning in the MTBPS that there is a need to extract taxes worth another R15-billion. An increase would mean further burdening an already strained populace, which the minister may not want to do ahead of the polls. Revenue collections are expected to undershoot the 2023 budget estimates by R56-billion, with Old Mutual's head of tax, Nazrien Kader, suggesting the government could join international counterparts by introducing a 15% top-up tax.
