Budget 24 leaves ordinary South Africans hurting

Although Finance Minister Enoch Godongwana managed to allay investor fears in his Budget 2024 speech, south African consumers were left hurting as the budget had no relief for their financial woes.

Godongwana managed to tread a fine line, with commentators touting Budget 2024 as his opportunity to show the country’s commitment to reining in liabilities, as demands on public finances increase ahead of the election. Unsurprisingly, his budget centred around a plan of action to tackle the fiscal deficit, Neil Roets, CEO of Debt Rescue, says.

“His macro-economic aggregates are very much in line with what economists expected: weak economic growth, sustained high inflation that affects interest rates and high levels of unemployment and poverty, which motivate extending and increasing the social wage support grant.”

As expected, Roets says, the minister delineated government plans to cut inefficient expenditure and spur economic growth potential to boost revenue and reduce funding shortfalls.

In the days leading up to his speech, economists said it would require the minister prioritising disciplined budgeting, efficient tax collection, responsible spending and sustainable economic growth promotion to get the country back on the road to economic development and ease the burden on South African households.

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Thankfully VAT was not increased in Budget 2024

Experts, including auditing firm PwC, speculated that increasing VAT could well be the most economically efficient and least harmful way to collect the additional R15 billion needed to cover the National Treasury’s additional shortfall, while others warned that the minister might have to dip into the country’s foreign currency reserves to raise additional revenue to shore up the fiscus instead of tax hikes.

Roets says this is indeed the decision that National Treasury decided to take as government will be tapping into the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to the tune of R150 billion.

“Reserve Bank governor Lesetja Kganyago has frequently expressed concerns about the shift towards “paper money,” fearing it might alarm investors interested in South Africa, but this is the route that was eventually followed.”

The news that the Covid-19 social relief of distress grant is extended at a cost of R33.6 billion until March 2025, with provisional allocations of R35 billion and R36.8 billion made for it in the following two years, was met with mixed feelings from many quarters.

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Minimal increases in social grants

However, the Budget figured in minimal increases for social grants, with the old age grant, war veterans, care dependent and disability grants increasing by R100 in 2024, with recipients receiving R90 effective from April this year and the remaining R10 from October onwards.

“With households across the country fast sinking into debt and poverty, it is difficult to see how an increase in expenditure with no expectation of economic return, as with the social grants’ increases and the continuation of the SRD grant, promotes economic development and how it will ease the burden on the millions of South African households who are part of the working economy,” Roets says.

“With a full third of the nation without income and considering the just-released quarterly labour force survey data from Statistics SA which shows a rise in unemployment figures from 31.9% in the third quarter of 2023 to 32.1% in the fourth quarter, it is not difficult to understand how government grants are indeed the only lifeline for many people.”

Currently, 28 million South Africans receive at least one social grant from the state and a further 10 million unemployed people receive the SRD grant.

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As unemployment increases, so does social dependency

“My concern is that an increase in unemployment leads to diminished trade and a contraction of the economy, plummeting even more citizens into debt and poverty. In the end, if the consumer is not doing well, the economy is not doing well,” Roets says.

“When unemployment is high, social dependency rises with it. The solution lies in stimulating job creation, especially among our youth, as the only way to turn the economy around through broadening the base of citizens who work to earn an income.”

Godongwana also announced that there will be no relief for individual taxpayers for inflation, saving the fiscus R16.3 billion. There will also be no inflation relief for medical tax credits, at a saving of R1.9 billion. These savings come from consumers’ pockets.

“At least on the upside, there will be no increase in personal income tax.”

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Sin taxes leaves no room for little luxuries

Roets says sin taxes are the bane of South African’s lives, especially now that the cost of living all but places their little daily luxuries out of reach.

“The minister’s proposed above-inflation increases in excise duties of between 6.7 and 7.2% on alcohol and tobacco excise duties increasing by 4.7% for cigarettes and vaping products that will be taxed at R3.04c per millilitre, may marginally affect the pockets of some consumers, but sadly, given the current economic conditions, for many people it will come down to making the choice between a nutritious meal or a drink and ‘smoke’ to take the edge off the day.”

Roets says rolling power cuts, clogged ports, inefficient railways that reflect inadequate infrastructure investment and poor management of state-owned enterprises (SOEs) have handicapped the economy for years. These have served to cripple the axis around which all other growth and prosperity spins – the economic growth of the country.

“Will Godongwana’s budget meet the expectations needed to turn things around and regain the trust of key global players like the International Monetary Fund? That is the fervent hope of 61 million South Africans,” Roets says.