MTBPS: 10 issues to look out for

Minister of Finance Enoch Godongwana will deliver the first MTBPS since the formation of the government of national unity on Wednesday afternoon in Cape Town. Will he announce a basic income grant or bailouts for state-owned enterprises? Will he tell us how much tax Sars collected as people withdrew funds under the two-pot retirement system?

Prof. Bonke Dumisa, an independent economic analyst, says he does not expect any surprises. “We already have 28 million people on different types of social grants compared to only 7.4 million people who actually pay personal income taxes, which is unsustainable. Do not expect significant increases to social grants, despite all the populist demands for such increases.”

Albert Botha, head of fixed income at Ashburton Investments, says politicians everywhere are famously good at making promises or making statements that sound suspiciously like commitments. “Yet, when it comes to budget time, the public gets to see where the focus truly lies because budgets are about more than money—they are a statement of a nation’s priorities.”

All budget documents are dense compositions, thick with numbers and charts, but they come down to three major questions, Botha says:

• How much money is the government collecting, and how and what changes can we expect?
• How much money are they spending, where, and will there be any changes?
• How much will the government need to borrow to balance the first two?

Waldo Marcus, marketing director at TPN from MRI Software, says key areas to watch will include any changes to allocations for provincial and local governments, as well as for security and water infrastructure.

ALSO READ: MTBPS: No major surprises expected – economists

Public wage bill is the elephant in the MTBPS room

Public sector trade unions have demanded a 12% wage increase for 1.3 million government employees for the 2025/2026 financial year. The government pencilled in just more than R750 billion for the 2025/6 wage bill, about 4.5% higher than the previous year.

Marcus says cutting jobs in the public sector will be the only way for the government to meet the trade unions’ demands. “Economists have warned that above-inflation salary increases that do not align with productivity growth will fuel inflation.

“South Africa’s public sector employees are among the best paid in the world. The public sector wage bill accounts for more than 30% of the country’s budget and is the third highest government wage bill as a share of gross domestic product (GDP) compared to 20 major global economies, according to the Centre for Risk Analysis.”

Isaac Matshego, Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the public sector wage bill will re-emerge as a significant drag on spending as government and public unions are in talks for wage settlements. “The unions have tabled a double-digit figure, well above the 4.6% rise in the February 2024 budget numbers.”

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SRD Grant to become Basic Income Grant?

Dumisa says we should also not expect any announcement about the basic income grant (BIG), as it is just too expensive to even gamble on. Botha says the Social Relief of Distress (SRD) grant may be extended indefinitely, with some already including it in their baseline projections.

Tax changes in the MTBPS

The experts do not expect any tax changes.

ALSO READ: MTBPS: positive outlook, but the public sector wage bill is elephant in the room

Revenue collection

Botha points out that there has been a slight underperformance in revenue collection this year of around R15 billion (0.2–0.3% of GDP), driven by a combination of factors, including lower import VAT collections resulting from a stronger Rand, lower personal income tax, and the general fuel levy.

He also notes that there was an injection of R100 billion from the South African Reserve Bank’s Gold and Foreign Exchange Reserve Account (GFECRA) into the National Revenue Fund, primarily to reduce government borrowing and debt service costs. Two more payments are planned, with R25 billion in 2025 and R25 billion in 2026.

Matshego, Khosa and Weimar say they project slightly higher aggregate revenue growth in 2024/25 as gross tax revenue is lifted by a robust increase in personal taxes and a marginal gain in corporate taxes.

“However, relatively subdued spending will contain VAT collections, with a slight shortfall likely for the financial year. Overall, we estimate gross tax revenue to be R2 billion higher than Treasury’s February estimate, lifting aggregate revenue growth to 6.1%.”

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How much will government spend?

Matshego, Khosa and Weimar say debt service costs will likely rise at a slightly higher rate than Treasury forecasts. Overall, they expect expenditure growth at 4.2% in the current financial year compared to Treasury’s projected 4.4%.

“We project the consolidated budget deficit at 4.4% of GDP in 2024/25, slightly lower than the 4.5% projected in the 2024 National Budget. However, over the MTEF period, the deficit will be wider than estimated in February, mainly due to the higher wage bill in FY2025/26. Encouragingly, the primary surplus will increase over the period.”

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Government debt and borrowing

Dumisa says Treasury will have to ensure that the country’s debt-to-GDP ratio does not go out of control and that our scary R6 trillion government debt does not get out of control.

Matshego, Khosa and Weimar say the public debt ratio is likely to be higher than in February, primarily as a result of lower nominal GDP.

Botha says the gap between spending and earning or revenue must be made up with borrowing, and it is here that some of the biggest strides are expected. “The last budget in February saw South Africa at a debt-to-GDP ratio of 73.9%, up from less than 60% before 2020.

“The rate of debt accumulation has been a concern over the last couple of years, but looking forward, the expectation from most economists is that the rate of accumulation will slow and then peak at between 74-76% of GDP over the medium term. Stabilising the debt position has been a goal of almost all the previous budgets of the last 15 years and is yet to be realised.”

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SOE bail outs

Botha says further support for state-owned enterprises (SOEs) is also likely, with Transnet potentially benefiting from such an allocation. “Whether this is palatable to the market will depend on the quantum of the allocation and the terms thereof. Continued support for Eskom is also likely, regardless of its recent success in combating loadshedding.”

Education budget cuts

Marcus points out that education is facing possible budget cuts as Treasury tries to manage its most significant expenses. “Although budgets allocated to basic education are expected to increase in the next three years, this is not keeping up with inflation and the education infrastructure needed to improve South Africa’s basic education delivery. “

ALSO READ: Inflation now expected to average 5.1% this year

Lowering the inflation target in the MTBPS?

Matshego, Khosa and Weimar say Treasury could announce changes to the inflation targeting framework by lowering the midpoint of the inflation target band to 3% from the current 4.5%.

NHI funding

Dumisa says NHI was deliberately enacted for purely political, ideological, and election reasons without any logical financial viability data, and therefore we should not expect significantly more than the currently budgeted R1.4 billion for NHI to be allocated.