Budget 2024: expectations in the face of revenue shortfall of R56.8 billion

South Africans are waiting with bated breath for Wednesday’s Budget 2024 speech when finance minister Enoch Godongwana will tell them how he plans to spend their money and make up the revenue shortfall of R56.8 billion.

“Ordinary consumers and taxpayers have every right to be concerned that this year’s budget may bring further hardship in these challenging economic times. However, there is a sense that government is sensitive to these concerns, particularly because this is an election year,” says Zandile Makhoba, economist at Liberty.

“There is no doubt that this year’s budget will be a challenging one for the Treasury with a number of factors at play. Firstly, the South African economy has continued to record weak economic growth since the 2020 Covid lockdown, with recovery ailing year-on-year due to a number of internal and external factors,” she says.

Makhoba points out that last year’s Medium Term Budget Policy Statement (MTBPS) projected a revenue shortfall of R56.8 billion, largely due to low corporate income tax revenue.

Treasury estimated gross domestic product growth of 1% for 2024 and Makhoba says this is hardly an improvement from the estimated 8% for 2023, which suggests that tax revenues are likely to continue to be of concern in the coming fiscal year.

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Budget: Will we pay more tax this year?

What does this imply for taxation in the coming year? “Consumers are already dealing with high interest rates and inflation and therefore to increase tax raises a number of concerns. Minor adjustments to personal income tax rates or the VAT rate could provide for this amount, but Treasury will be sensitive to the ongoing challenges at the household level, as the cost of living continues to be a struggle for consumers.”

She says this must also be balanced with the consideration that it is an election year and government may not be willing to upset voters ahead of the election with a dramatic change to taxation.

“However, there are other options. The first is to improve revenue collection by improving collection efficiency at Sars as a number of economists and analysist suggest. Automation and digitisation, as well as swiftly addressing tax fraud and evasion, would make up for lost revenue.

“The other options are more long-term, involving creating an enabling an environment for economic growth, but with the budget already under strain, expansionary fiscal policy that would stimulate economic growth is already limited.”

Makhoba says the 2024 budget should detail plans to encourage private sector investment in infrastructure, in particular energy, logistics and water as the MTBPS indicated plans for collective infrastructure investment and Private Public Partnerships to get the work done.

In terms of expenditure, she expects no major changes. “It can be argued that a notable contribution to grants and the wage bill is needed, as without it socio-economic conditions could escalate within an already tense consumer climate. Rating agencies will no doubt keep a close eye on these developments.”

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Declining economic growth globally and in SA

George Herman, chief investment officer at Citadel, says the biggest issue to contend with on the income side of the budget is the declining economic growth profile globally and specifically in South Africa.

“The benefits we saw from higher commodity prices have now subsided and corporate tax is truly under pressure which means that the revenue will be lower.”

His expectations for the Budget are:

• Tax and VAT expectations remain positive: With the number of taxpayers in the highest bracket having grown, we could see an increase of tax in this bracket. However, there is a possibility that this is due to pure bracket creep. It is estimated that bracket creep could increase tax take by between R15 billion to R20 billion, which will cover a few gaps.
• Government expenditure and the continuing wage bill dilemma: The expenditure side of the budget is a “tougher story” as there are many aspects of it that must be watched, from under-budgeting in terms of the government wage bill to the increase in social grants and plans to make the Social Relief of Distress (SRD) grant permanent.
• Debt servicing and state-owned enterprise (SOE) bailout woes: A big issue in a world with increasing interest rates is the rising debt service cost and in this year’s budget we will find that South Africa’s debt servicing cost has become the single largest component of the expenditure budget.

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SA continues to overspend and under-collect

Elna Moolman, head: South Africa macroeconomic, fixed income and currency research at Standard Bank South Africa, explains that revenue collection has simply been unable to match expenditure as a result of a weak domestic and global environment, persistent load shedding, wasteful expenditure and weak global commodity prices.

“The environment remains much the same, yet the country continues to overspend and under-collect. Also, due to increased borrowings to plug the gap, the debt-to-GDP ratio increased. therefore, we will be looking for guidance on how government plans to stabilise the growing debt-to-GDP ratio in the medium term.”

She believes the country will be looking for signals on how government plans to cut inefficient expenditure and spur economic growth potential to boost revenue and reduce funding shortfalls.