Finance Minister can’t save South Africa

The growth South Africa needs for its economy to recover cannot come from the Budget but needs to come from the private sector.

This is the view of the South African Institute of Taxation CEO, Professor Keith Engel, who said the Finance Minister can only do so much to stimulate growth.

Finance Minister Enoch Godongwana is set to present the 2024 Budget on 21 February 2024.

The minister is in a difficult position as the state faces a massive fiscal deficit, an ever-growing debt burden and political pressure in the face of an upcoming election.

Many have speculated on potential tax increases the minister could implement or how the state may limit spending to narrow the budget deficit.

However, faced with an election and increasing pressure on the ruling party to maintain its majority, major tax hikes and austerity measures seem unlikely.

In addition, these measures are unlikely to be enough to stimulate growth or narrow the budget deficit effectively, considering South Africa’s small tax base.

“The problem is the Minister of Finance can only do so much to stimulate growth,” Engel said. 

“Lowering corporate taxes is not going to get any growth. I think you might get some goodwill out of lowering individual taxes, but that’s all we can’t expect for growth there.” 

He added that incentives generally have a very muted effect and are usually so paltry that they make little difference.

“The real issue for growth in this economy lies outside the minister, and that is that we are not privatising fast enough when it comes to Transnet and Eskom,” Engel said. 

“We are not putting enough into infrastructure – that costs money, but at least you can privatise it.” 

Another area that could stimulate growth more effectively is deregulation. 

“The government is committed to heavy regulation, which is slowing business down, both big and small,” Engel said. 

“So frankly, the growth factor is beyond the Finance Minister’s hands. The only thing he can do is balance the budget.”

“The minister can’t save the day for growth. It comes down to President Ramaphosa – if he doesn’t do anything, the minister can’t save the day.”

To narrow the budget deficit, Engel expects the minister to implement smaller tax hikes and rely on the South African Revenue Service to improve compliance.