In an SABC interview after the finance minister’s medium-term budget speech, SA Revenue Service (Sars) commissioner Edward Kieswetter decried the country’s lack of economic growth.
Weak economic growth would result in a lack of productive capacity, no jobs, a declining tax base and, therefore, declining revenue for Sars, he said.
Kieswetter made the example that for every R100 spent, R60 goes towards social expenditure, R20 to debt servicing, and the other R20 to investment in infrastructure. Due to these fiscal constraints, SA cannot invest more in infrastructure.
In a previous article I shared that infrastructure investment plans to the value of R793.7bn were approved in the first half of 2024, up from R193.2bn in 2023 (“Order books are full, but skills are scarce”, October 24). Because economies are circular, this investment results in jobs and income — income to invest in homes and pay for school fees.
This money buys steel, concrete and cement, and also goes to the provision of water and electricity, increasing utility and municipal revenue. This money buys food, medicine and cars, sustaining the agricultural, pharmaceutical and automotive sectors.
Economic growth will only happen if we have an infrastructure-led economy driven by the government. This sentiment is shared by finance minister Enoch Godongwana who, being an infrastructure fundi himself, appreciates the vicious cycle of how not investing in infrastructure affects your tax base.
Infrastructure-led growth has transformed China and the Middle East, leading to substantial economic development and modernisation. In China, enormous investments in infrastructure have catalysed rapid urbanisation, improved connectivity and boosted industrial productivity. This strategic focus has elevated living standards and positioned China as a global economic powerhouse.
Similarly, in the Middle East countries such as the UAE and Saudi Arabia have witnessed profound economic diversification and modernisation through ambitious infrastructure projects.
Developing world-class airports, roads and urban centres has attracted global businesses and tourism, propelling these nations on to the world stage and reducing their dependence on oil revenues.
China and the Middle East prove that judicious infrastructure investments stimulate economic growth, create jobs and enhance national prosperity. Sadly, SA’s fiscal strategy is premised on debt consolidation — or, as some call it, austerity — and the only lever government uses to do so is taxation.
SA is expecting a R22.3bn revenue shortfall in the 2024/5 financial year because of three elements:
- A lower wage bill than predicted due to lower job growth, retrenchments and people applying to end their tax residency because they moved overseas.
- The fuel levy has not increased because fuel volumes have decreased.
- Imports have declined, so Sars is collecting less from import taxes, VAT and customs duties.
The only saving grace regarding the revenue shortfall envisaged by Sars has been increased corporate tax revenue and the two-pot retirement withdrawals, which will add to the fiscus.
I want to home in on the fuel levy because it accounts for more than half of the shortfall. Our economy is highly sensitive to energy prices and the supply and demand for fuel.
Eskom not using its open-cycle gas turbines to generate power as much as it did in 2023 has affected fuel consumption and, as a result, what Sars can recover from the fuel levy.
The solar PV rebate programme also contributed to the revenue decrease because people opted to install solar panels to qualify for a rebate, rather than installing a generator and burning diesel. Because SA has limited refineries and no domestic oil, fuel importation increased inflation in 2023.
South Africans have been paying more for electricity and fuel, installing solar panels and battling inflation. Due to the budget shortfall, they might be in for a nasty surprise in the February budget speech.
Despite this, the economy is expected to grow by 2% in 2025, and therein lies the conundrum: you can’t eat GDP. You also can’t tax yourself into prosperity. Our only way out is through infrastructure-led economic growth.
• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.
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