The minister pointed out in the MTBPS that government debt is too high although there was a budget surplus for the first time in 15 years.
Although Finance Minister Enoch Godongwana disappointed citizens who wanted a basic income grant and more basic foods to be exempted from value-added tax (VAT), he did not include any bailouts for state-owned enterprises in the Medium-Term Budget Policy Statement (MTBPS) and allocated money for early-retirement packages for public servants to control the public servant wage bill.
Godongwana said that about R11 billion is budgeted for early retirement of government employees over the next three years. Up to 30,000 government employees can qualify for voluntary early retirement over the next two years.
The MTBPS contained no bailouts for state-owned enterprises (SOEs), although Transnet needs a loan guarantee, while the SABC is technically insolvent and the Post Office needs R3.4 billion to execute its business rescue plan.
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Debt too high and rising too fast
Godongwana also expressed his concern that government debt has risen too fast and is too high. “We anticipate that government debt will reach more than R6.05 trillion, or 75.5% of gross domestic product (GDP) in 2025/26.
“We know that our debt is unsustainable because debt-service costs have become the largest component of our spending and it is rising faster than economic growth. Debt-service costs will reach R388.9 billion in the current financial year. Put differently, this means for every one Rand of revenue that government raises this year, 22 cents is paid in debt-service costs.”
He said to deal with this problem, government have taken difficult steps to reduce the budget deficit by restraining spending and maintaining stable tax collection. “As a result of our measures, government achieved a primary budget surplus in 2023/24, for the first time in 15 years. The surplus is needed for us to stabilise debt.”
However, he pointed out, the primary surplus is not a pot of money but rather the difference between what government spends, excluding debt-service costs and what government collects in revenue.
Over the medium term, Godongwana said, the main budget deficit will decline from 4.7% of GDP in 2024/25 to 3.4% in 2027/28, with the primary budget surplus rising to 1.8% of GDP. He added that the primary surplus will be sufficient for debt to stabilise at 75.5% in 2025/26.
Debt service cost will grow at an annual average of 6.9%, lower than the 7.3% expected in the February budget. A primary budget deficit will be maintained for the next three years and will double from about R75.3 billion in the next financial year to R166.7 billion in the 2027/28 financial year.
“Debt will then decline over the rest of this decade. The key impact of this is that debt service costs will also stabilise and begin to decline over the next few years.”
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Revenue collection did not do so great
While the country needs more money to balance its books, Godongwana said that revenue collection for 2024/25 is expected to be R22.3 billion lower than what Treasury estimated in February, while the main budget estimate for the next two years has also been lowered by R31.2 billion.
“In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend. Lower revenue also means that we cannot accommodate all of the demands on the fiscus. Difficult trade-offs, in all spheres of government, will have to be made.”
Lower revenue collection was due to a decrease in VAT collection of 4.5% as people imported less equipment for alternative power as Eskom reduced load shedding, while income from the fuel levy decreased by 3.9% due to a lower demand for fuel and a large once-off rebate on diesel of R9 billion that had to be repaid this year.
Expenditure also had to be adjusted upward by R10 billion due to unexpected expenses such as emergency funds for disasters, paying a portion of the Sanral e-toll debt in Gauteng and the cost of deploying the army in the DRC.
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Big plans for private sector investment in infrastructure
Godongwana also announced various reforms to mobilise significant private-sector financing and technical expertise to augment the limited public-sector capacity and capability.
Public Private Partnership (PPP) regulations will be amended to simplify requirements for undertaking these projects and the amended Treasury Regulation 16 will be published before the end of November for implementation in 2025/26. The Municipal PPP Regulation 309 will be finalised by June next year.
“Government is making a concerted effort to increase the pool of funders to diversify public infrastructure financing through new mechanisms and instruments. These include build-operate-transfer (BOT) structures and other concessions.
“Collectively, the infrastructure reforms will strengthen planning, appraisal, contracting, financing and monitoring and evaluation. The outcome will be faster delivery of infrastructure that supports economic growth, the expansion of access to basic services and boosting job creation.”
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Economic growth adjusted downwards in MTBPS
Godongwana said that domestic GDP growth of 1.1% is forecast for 2024, lower than the estimate of 1.3% in February. Over the medium term, growth is forecast to average 1.8%.
“There are several risks to this outlook, including persistent geopolitical tensions and the threat of escalating conflict in the Middle East remains a concern. Wars elsewhere, such as in the Sudan and the conflict between Ukraine and Russia, threaten regional and international stability, as well as global trade.
“These risks imply that emerging markets and developing countries such as South Africa will continue to face headwinds over the medium term.”
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Basic income grant, lowering inflation target not so big in MTBPS
Although various civil groups have been lobbying for a basic income grant (BIG) to take the place of the SRD grant, Godongwana said nothing about it.
While the governor of the South African Reserve Bank said recently that the inflation target should be lowered, Godongwana did not refer to it in the MTBPS.
