Budget 2024: Economic outlook and implications

South Africa was on tenterhooks before the announcement of the 2024 National Budget. The country is in a major economic slowdown, made more difficult by continued load-shedding and the decline in our national logistics networks. Finance Minister Enoch Godongwana had to balance the need to boost economic growth and reduce unemployment with the equally important need to service the country’s growing national debt. So, what is government’s budget strategy?


Managing national debt: A closer look

Minister Godongwana announced a worsening of the official estimate of the budget deficit from a year ago, from 4% to 4.9% of GDP. This means that debt service costs will increase by an additional R15.7 billion to R356 billion and absorb more than 20% of national tax collections, which amounts to more than the respective budgets for social protection, health, and peace and security. Debt will now peak at 75.3% of GDP in 2025/26. The tax revenue shortfall in 2023/24 is R56.1 billion, mostly due to lower corporate tax collection, especially the steep fall in mining taxes, with miners hit hard by load-shedding.

Over the coming year, personal tax collections are expected to rise by 9.4% a year, while company tax payments will increase by 5.1%. Value-added tax collections are projected to increase by 6.6%, exceeding National Treasury’s inflation forecast of less than 5%.

The big news for borrowing costs is the use of valuation gains in the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to reduce the public sector gross borrowing requirement (PSGBR). Over the medium-term framework, the PSGBR averages 6.25% of GDP, easing to 5.1% in 2026/27 from 7.8% in 2023/24. Between 2024/25 and 2026/27, Treasury will tap R150 billion from the GFECRA. Legislation governing the use of valuation gains and losses in the Contingency Reserve Account is still to be formalised. Tapping the GFECRA is meant to reduce government’s borrowing, which averages more than R1 billion each day.


Taxation updates

Godongwana aims to boost tax revenue by R15 billion in 2024, even though he has not raised income tax or other tax rates. The South African Revenue Service (SARS) expects to gain the extra revenue from income tax on salaries that have been increased by employers to keep pace with inflation, which is expected to run at 4.9% this year. The 2024 Budget does not adjust tax brackets for inflation, so pay increases will likely push many taxpayers into a higher tax bracket, producing more income tax revenue. Similarly, tax rebates and medical aid scheme contributions won’t be adjusted for inflation. 


The National Health Insurance scheme

The National Health Insurance (NHI) scheme dominated the news in the run-up to the Budget announcement. While not removing the NHI from the national fiscal picture, Godongwana instead allocated R1.4 billion to developing the rollout of the policy as a ‘demonstration of commitment’ to it.


Excise duties for alcohol will increase by up to 7%

The initial allocation, part of an R848 billion total allocation to the health portfolio, is dedicated to factors such as building a national health information system and digital patient records, upgrading facilities and accrediting hospitals, as well as developing reference and payment systems for the scheme. 


Addressing employment concerns

While short on effective funding to generate new and additional employment, especially in the private sector and particularly in entrepreneurial and small-business contexts, the 2024 Budget indicates that government will at least attempt to constrain spending on the public sector wage bill. It has allocated R251 billion in the coming financial year to cover public sector wage increases. This will predominantly be used to fund the salaries of essential public-sector workers such as teachers, health workers and the police. No money has been allocated to fund wage increases in other public sector departments.


Eskom and Transnet challenges

The elephant in the room of this Budget was how Treasury would deal with the constraints on the economy imposed by the debt and inefficiencies of the 2 largest SOEs, Eskom and Transnet. The Budget stipulates that allocations to Eskom through government’s debt relief programme will be cut by R4 billion over 2 years, citing the power utility’s failure to dispose of its finance company, which was a condition of the previous bailout.

Eskom’s debt, apart from the massive knock-on economic damage caused by 15 years of rolling blackouts, prevents it from properly investing in its ageing coal-fired plants, further cementing our power provision woes. Eskom alone has received more than R300 billion in bailouts since 2008. Treasury is now seemingly becoming more stringent about the utility’s recovery plan, insisting that private sector collaboration and alternative power generation are prioritised.

Transnet was recently granted a R47 billion bailout to enable the state ports and rail company to service its debt and cover its operational costs. However, government has approved Transnet’s use of only R14 billion of the package from December 2023 to March 2024 to pay off maturing debt, to ensure that the SOE sticks to its recovery plan.

The plan includes accelerating capital spending on operational equipment such as port cranes, marine vessels and rail rolling stock. The rail recovery focuses on allocating capital for the rehabilitation of rail infrastructure and returning older locomotives to service. The Budget makes no further allocations to Transnet, which has inflicted a huge blow to the economy in recent years, endangering jobs and damaging productivity, especially in the mining industry.


‘Sin’ taxes

‘Sin’ taxes and customs duties are the fourth-biggest contributors to the tax revenue base and will generate around R142 billion in 2024/25. Excise duties for alcohol will increase by up to 7%, by up to 5% for cigarettes, and by up to 8% for pipe tobacco and cigars.

See Nedbank’s full breakdown and economic analysis of the 2024 Budget.