The government’s debt stabilisation strategy over the next three years will be significantly bolstered by a net R150bn injection from the R507bn Reserve Bank Gold and Foreign Exchange Contingency Reserve Account (Gfecra), which will improve SA's fiscal prospects.
This will be used to pay off government debt, resulting in lower gross loan debt and debt service costs. It will be provided for in legislation tabled in parliament on Wednesday, with the drawdown taking place in the 2024/25 fiscal year.
Also contributing to enhanced fiscal prudence will be the Treasury’s plans to develop a fiscal anchor in 2024, which it says “will secure the benefits of fiscal consolidation and ensure that permanent fiscal imbalances do not reappear in a way that requires painful future adjustments”.
Treasury director-general Duncan Pieterse said at a media briefing before finance minister Enoch Godongwana’s budget speech in the National Assembly that consultation was still needed on the anchor, but the Treasury would use a debt-stabilising primary surplus as a fiscal policy guide.
Taxpayers will bear some of the burden of the fiscal consolidation proposed in the budget as they will get no relief for the effect of inflation on tax brackets in 2024/25.
The head of the Treasury’s budget office, Edgar Sishi, said in a media interview that the planned Gfecra drawdown would improve the fiscal outlook and the Treasury’s debt stabilisation path “substantially”, though he added that higher GDP growth forecasts, lower inflation and revenue measures would also contribute.
An amount of R100bn will be transferred to the Treasury from Gfecra in 2024/25 once an agreement has been reached with the Reserve Bank, and R25bn in each of the following two years. The actual gross drawdown will be R250bn, with R100bn being used by the Treasury to compensate the Reserve Bank for it.
The result will be that the Treasury projects gross loan debt to be 74.7% in 2026/27 compared to the projection in November’s medium-term budget policy statement (MTBPS) of 77.5% with debt stabilising at 75.3% in 2025/26. Debt service costs will decline by R30.2bn as a result over the medium-term expenditure framework (MTEF) compared to the MTBPS projections. After peaking in 2025/26 they will then decline.
Gfecra contains the unrealised profits or losses incurred by the Reserve Bank on the country’s foreign-exchange reserve holdings arising from changes in the value of the rand. Any net profit/loss in Gfecra accrues to the government in terms of the SA Reserve Bank Act.
Pieterse said in the foreward to the Budget Review tabled in parliament on Wednesday that “the government is staying the fiscal course. By the end of [March], for the first time since 2008/09 we will achieve a primary budget surplus, meaning revenue exceeds noninterest expenditure”.
The consolidated budget deficit is expected to improve relative to the MTBPS forecasts, declining to 4.5% in 2024/25, 3.7% in 2025/26 and 3.3% in 2026/27, compared to the 3.6% that the MTBPS forecast for the latter year.
Another key announcement is that there will be no relief for individual tax payers for inflation, saving the fiscus R16.3bn. There will also be no inflation relief for medical tax credits, at a saving of R1.9bn.
Excise duties on alcohol will increase above inflation to generate an extra R800m but there will be no increase in the fuel levy, at a cost to the fiscus of R4bn. Excise duties on alcoholic beverages will increase between 6.7% and 7.2%, tobacco excise duties by 4.7% for cigarettes and cigarette tobacco, while the excise duty on vaping products will also increase.
The net result will be tax increases of R15bn.
Treasury is able to reverse R57.6bn of the spending reductions over the next three years projected in the MTBPS, increasing funding to pay for the salaries of teachers, nurses, doctors, police and others. Additional spending of R18.6bn in 2024/25, R19.2bn in 2025/26 and R19.8bn in 2026/27 has been allocated.
Nevertheless, the government plans to decrease noninterest expenditure by about R80.6bn over the next three years compared to the 2023 budget. The expenditure plans include proposed reductions of R206bn to departmental baselines and provisional allocations not assigned to votes; a drawdown of the 2023 budget unallocated reserve; and spending additions of R251.3bn over three years including R144.8bn to cater for the carry-through costs of the 2023/24 wage increase and wage bill pressures in labour-intensive departments such as basic education, health and police.
The public-sector wage bill is expected to grow near the rate of CPI inflation over the next three years.
The Covid-19 social relief of distress grant has been extended at a cost of R33.6bn until March 2025, with provisional allocations of R35bn and R36.8bn being made for it in the following two years.
Treasury has upped its growth projection for 2024 to 1.3% from the 1% in the MTBPS, while for the two outer years it remains the same at 1.6% and 1.8%, respectively.
Slow economic growth, load-shedding and logistic constraints have meant that gross tax revenue for 2023/24 is expected to be R1.73-trillion, or R56.1bn lower than expected in the 2023 budget. Over the MTEF, gross tax revenue will increase by R45.6bn. Gross tax revenue in 2024/25 is forecast at R1.86-trillion after the tax proposals.
Total consolidated government spending is expected to grow at an average annual rate of 4.6% from R2.27-trillion in 2023/24 to R2.6-trillion in 2026/27. This will just keep it in line with CPI inflation, which is forecast to be 4.7% in 2024/25 and 2025/26 and 4.5% in 2026/27.
Relative to expected inflation, expenditure on nearly all government functions will suffer real declines over the next three years with the average annual growth for learning and culture at 3.9%, health at 3.4%, social development at 2.7%, peace and security 4% and general public services 1%. Only the economic development function grows at an average annual rate of 6.3%.
Sishi stressed that as the function budgets would still see growth, the budget was not an austerity budget.
An amount of R7.4bn has been set aside in 2024/25 for the presidential employment initiative.
In terms of the division of revenue, 48% of nationally raised revenue will be allocated to national government, 42.2% to provinces and 9.8% to local government. Provinces will get R729.5bn in 2024/25, rising by a below inflation rate of 3.8% on average annually over the next three years, and local governments will get R170.3bn, receiving an average annual growth of 5.2% over the MTEF.
The public-sector borrowing requirement is forecast at R332.5bn for 2024/25, R424.7bn for 2025/26 and R279bn for 2026/27. The Treasury has provided for a contingency reserve of R5bn in 2024/25, R7.6bn in 2025/26 and R14.5bn in 2026/27.
Because of the Gfecra drawdown, the government’s gross borrowing requirement is projected to decrease from R553.1bn in 2023/24 to R428.5bn in 2026/27.
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