Enoch Godongwana, the finance minister, tabled the medium-term budget policy statement (MTBPS) on Wednesday with numbers that were worse in the short term than pencilled in in February, but committed government to stay the course on stabilising public debt and outlined reforms to boost public and private investment in growth-boosting infrastructure.
This was the first budget of the new government of national unity (GNU), but the minister said there was no change in the tone “precisely because the major big parties in the GNU are agreed that fiscal consolidation must take place, even though many disagree on the pace”.
Deputy finance minister Ashor Sarupen said many of the issues he had raised in the DA’s alternative budget of a year ago were addressed in Wednesday’s MTBPS, which came out of a very inclusive process, and he was “comfortable” with it.
The budget shows government is still set to run debt-
stabilising primary budget surpluses over the medium term, with revenue exceeding non-interest spending. But the surpluses are slightly lower than Treasury projected in February — and debt will peak at a slightly higher level, at 75.5% of GDP, or R6-trillion, though this will still start to decline from 2026/27.
Debt service costs will peak at almost 22% of tax revenue in the same year and are set to come in higher than expected mainly because the government will have to borrow more than expected.
“We know that our debt is unsustainable because debt service costs have become the largest component of our spending and are rising faster than economic growth,” the minister said.
The slide in the numbers reflects lower-than-expected revenue, as well as additions to spending over the next couple of years. A revenue shortfall of R22bn is expected in the current fiscal year, worse than many economists expected, with the fuel levy and import value-added tax undershooting targets in large part because of the end of load-shedding, which reduced Eskom’s diesel burn as well as imports of renewable energy equipment.
Personal income taxes also fell short but company income taxes are expected to outperform February’s budget
estimates. The shortfalls are expected to carry through to the next two fiscal years. But they could see upside from September’s introduction of the two-pot system, which Treasury budgeted would yield R5bn of extra tax but SA Revenue Service (Sars) commissioner Edward Kieswetter told journalists was already over R7.2bn.
The largest item of extra spending is an R11bn early-retirement package which could see up to 30,000 people over the age of 55 opt to depart the public sector over the next two years. Treasury officials said this was not a retrenchment programme nor a ‘free for all’ and the decision to allow people to go would depend on whether they were critical or not.
“But we expect the process to give departments an instrument helping them reshape their organisational design and structure,” the Treasury’s Marumo Maake said.
Sars, the office of the chief justice and parliament will also get more money.
“The medium-term spending adjustments are aimed at maintaining the integrity of key institutions and improving state capability,” Godongwana said.
Treasury director-general Duncan Pieterse said in an interview with Business Day the fiscal framework was “credible” and he believed ratings agencies would likely view the MTBPS
as consistent with the 2024 budget and constructive over the medium term. The Treasury plans to go back to international bond market in the current fiscal year, though officials would not say when. It plans to raise $3bn from international financial institutions and capital markets in the current year, and a total of $15bn over the medium term.
A key theme of the budget was to pivot government spending towards higher investment on public infrastructure, in areas such as electricity and water, as well as to accelerate the delivery of infrastructure projects.
Godongwana announced a series of far-reaching reforms which will scale up and institutionalise private participation, including a new credit guarantee scheme to derisk and mobilise private capital. Private partnership offices have been established in the water and transport departments and the Treasury is simplifying public private partnership regulations.
Godongwana told journalists that lowering inflation and maintaining a primary budget surplus would support growth-boosting reforms, which were gaining traction.
He said the joint Treasury Reserve Bank macroeconomic committee had set out the work that needed to be done before it could answer the question on lowering the inflation target, as Bank governor Lesetja Kganyago has urged to make SA more competitive.
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