Finance Minister ‘not ruling out’ tax increases in 2024

Finance Minister Enoch Godongwana said he is “not ruling out” tax increases in 2024 as the government battles with a massive budget shortfall. 

Speaking to SABC News at the World Economic Forum in Davos, Godongwana said that while he is not ruling out tax increases, doing so “in this environment” would be a difficult exercise, referring to the country’s constrained economy.

Godongwana’s comments come after the National Treasury proposed drastic steps to rein in spending in September 2023 as the government faces a massive budget deficit for the 2023/24 financial year.

The Sunday Times reported that the National Treasury prepared radical measures after a cabinet meeting in August at which ministers were warned of dwindling tax revenue.

The measures include a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.

“The spending cuts have been widely welcomed and indicated that the government had ‘run out of money’ and faced a ‘debt trap’ as growth had stalled,” The Sunday Times said.

The National Treasury’s concerns were unsurprising, considering the latest data about the state’s financial health.

The National Treasury revealed last year that the budget moved to a deficit of R143.8 billion for July.

It is the largest deficit since 2004 and wider than the R115.5 billion forecast by economists. There was a surplus of R36.7 billion in June.

Bloomberg reported that national debt has risen to R4.7 trillion and could reach R6 trillion in 2025, compared with R500 billion in 2006.

More recently, Investec chief economist Annabel Bishop estimated that the government is facing a deficit of around R347 billion for the 2023/24 financial year – over 40% more than the previous year.

The deficit currently stands at R312 billion, while the revised deficit for the full fiscal year is projected at R347 billion – a substantial increase from the R247 billion deficit in 2022/23.

Bishop added that gross loan debt is projected at 74.7% of GDP for 2023/24, significantly up from 70.9% in 2022/23. It is also far higher than the 72.2% of GDP initially projected for 2023/24. 

Bishop said this lift in projected borrowings has caused market concern and weakened yields.