Budget 2024: no substance, or the best in an election year – economists

Was there any substance to Budget 2024 and did the Minister of Finance, Enoch Godongwana do his best in an election year to deliver the best budget under the circumstances in a weak economic environment? Economists weigh in.

Professor Bonke Dumisa, an independent economic analyst, says Godongwana said very little in his Budget speech.

“It was really lacking in substance. The only deviation from past budgets was the R150 billion that National Treasury will take from the R500 billion Gold and Foreign Exchange Contingency Reserve Account (GFECRA).

“As I have said before, it is not wise to dip into contingency funds for operational expenses. I am happy he did not say anything about the National Health Insurance (NHI) and Value-Added Tax (VAT).”

Dumisa says he also found it very interesting that 10 000 new police members will be recruited and he is not sure about the real effectiveness of the R61.4 billion for employment programmes.

He also questions whether the additional R57.6 billion for the salaries of teachers, nurses and doctors will increase government efficiencies or just appease the ever-growing public servants bill as civil servants are potential voting pool for the ANC ruling political party.

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Despite election, Budget was more realistic

Maarten Ackerman, chief economist at Citadel, however, says although the 2024 Budget speech was delivered in an election year, the business sector is relieved to see that it was a “more realistic, debt consolidation budget rather than a purely populist budget”.

“The core issues that faced the economy were government’s ballooning debt and contracting revenue on the back of weak economic growth which affect the country’s ability to make ends meet. Thankfully, this budget was designed to stem the tide – albeit with a once-off solution rather than solving the deep structural issues that cause these problems.”

Ackerman believes the GDP numbers in this year’s budget are more realistic than last year’s. “Government’s projected GDP growth of 1.8% per year by 2027 is realistic. Citadel believes this number could be even better thanks to the groundwork done to further resolve issues around the energy and transport/logistics sectors and by gearing South Africa for investment into a burgeoning electric vehicle manufacturing industry.”

However, he noticed that uncertainty remained over the implementation of a few big-ticket spending items in the national budget, such as the Social Relief of Distress (SRD) grant, NHI, a national health information system and the ever-ballooning government wage bill.

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Concern about continued support for failing SOEs

“Of great concern was government’s ability to continue supporting failing state-owned enterprises and dysfunctional municipalities, although the announcement of a programme to reform delinquent municipalities did appear to be good news.”

He says the country’s debt servicing costs are still the fastest growing expenditure in the budget as the gold reserves have not completely rescued us from this fate.

“But at least it brings immediate relief and gives us some breathing room to focus on interventions that can help the economy to start growing faster again and get us past the election line in three months’ time.”

 North-West University Business School economist Prof Raymond Parsons says in the face of a daunting combination of economic and fiscal imperatives, Godongwana gave a realistic assessment of the socioeconomic and fiscal challenges confronting South Africa, including a high sovereign credit risk.

“The Budget had to walk a complex tightrope of tough economic and political decisions within a limited fiscal space. The fiscal ‘mix’ in the Budget sought to find the difficult balance of reconciling what is needed to underpin the economy with continued commitment to fiscal consolidation and containing debt.”

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Size of the pie not growing fast enough

Parsons says the Budget recognised the overall need to slow the growth of national debt and lower its cost with a number of measures intended to bridge the fiscal gap. The Budget nonetheless rightly acknowledged that “the size of the pie is not growing fast enough to meet our developmental needs” and that “there are risks to the domestic outlook”.

“One major risk to the fiscal outlook is the continued dominance of interest rate payments in the Budget. And what is also essential in the aftermath of further bailouts for major SOEs like Eskom and Transnet is that the continued assistance needs to be firmly linked to productivity and performance gains to avoid perpetuating a situation of quasi-permanent financial relief for ailing SOEs.”

“The Budget growth forecasts for the immediate future, nevertheless, fall far short of what the country needs. Unless South Africa wants to get trapped in this low growth range, bolder steps are needed to ‘grow the economic pie’. What clearly comes through the fiscal gloom of recent Budgets is again the overwhelming need for a strong and sustainable boost in South Africa’s flagging growth rate on the basis of significant current reforms and their active implementation.”

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Easy way out of difficult situation

The economists at the Nedbank Group Economic Unit, Isaac Matshego, Johannes Khosa and Nicky Weimar, say although National Treasury has again signalled its commitment to contain the increase of the public debt stock by remaining on a path of fiscal consolidation, it has undoubtedly opted for the easy way out of a difficult situation by utilising the gold and forex reserves.

“The additional burden on individual taxpayers threatens to weaken consumers already grappling with the effects of high debt levels and elevated interest rates.”

Overall, they say, this was a prudent budget against the backdrop of elevated expenditure needs. “However, the risk of missing the estimates over the MTEF period will remain high. Faster economic growth, which an accelerated implementation of structural reforms would facilitate, is necessary to expand the revenue base and boost aggregate revenue. Expenditure restraint, particularly on non-investment spending, will be crucial to stabilise the fiscal position further.”