Dawie Roodt’s expectations for South Africa’s ‘mini-budget’

The Medium-Term Budget Policy Statement (MTBPS) likely will not contain any major changes. The Finance Minister may report lower tax revenue and provide an update on the struggling South African Post Office.

This is according to Efficient Group chief economist Dawie Roodt, who told Daily Investor that the MTBPS is not a budget statement, as many may believe.

Rather, it is an opportunity for the Finance Minister to report on how the February Budget has been implemented throughout the year and whether the government is still in line with the projections they set out in that budget.

He explained that South Africa has a three-year rolling budget from the Medium-Term Expenditure Framework.

This framework means that the government reviews and updates its spending and revenue projections for the current year and the next two years each year. 

This three-year budget cycle is recalibrated annually based on changing priorities and economic conditions.

In short, our budget acts like an “automatic gear” which provides three-year projections of expenditure and can be reviewed during the course of the budget.

Therefore, this MTBPS likely will not significantly change the government’s budget but rather act as a mid-year update and guide to the MTEF.

However, this does not mean that the statement will not provide any valuable information on South Africa’s fiscal health.

Roodt said Finance Minister Enoch Godongwana will provide an update on South Africa’s revenue and expenditures for the year so far, which will likely show lower-than-expected tax revenue for the state.

He expects the minister to announce that revenue is slightly under pressure this year, mostly due to the country’s lacklustre economic growth, which weighed on companies and consumers.

However, he said there might be some hope in the recently implemented two-pot retirement system.

This system was implemented on 1 September 2024 and allows retirement fund members to withdraw money from their retirement savings every year.

The response to this system has been overwhelming, with thousands of South Africans withdrawing funds from their savings.

This will likely positively impact the state’s coffers, as pre-retirement withdrawals are taxed at an individual’s marginal tax rate.

In addition, if a member withdraws funds from their savings under the two-pot system and owes tax to SARS, their debt to the taxman is paid off before they can access the money.

Therefore, while the government’s revenue may be under pressure now, the two-pot system may give it the extra boost it needs to meet projections.

In terms of expenditure, Roodt expects the minister to report that it is in line with the February budget’s estimates.

He is also hoping the minister reiterates and reports on the government’s commitment to taming its spending.

“The government’s finances are in trouble,” he warned and added that reining in spending is one of the only ways to fix it.

This is particularly true for South Africa, where economic growth is weak. As Roodt explains, “If economic growth is weak, your numbers will be weak”.

Aside from revenue and expenditure figures, Roodt also expects the Finance Minister to provide an update on the struggling South African Post Office (SAPO).

In September of this year, it was announced that the Post Office was on the brink of shutting down, with its business rescue practitioners (BRPs) warning it that it would face liquidation if the government did not pump billions into the state-owned company. 

However, Godongwana drew the line under unconditional government bailouts for state-owned companies in his February Budget, saying SOEs must meet certain performance benchmarks and implement structural reforms before receiving government support. 

Therefore, a bailout may be likely for the struggling Post Office, but it will not come without strings attached.

Roodt hopes to see an update on the South African Reserve Bank’s inflation targets in this year’s MTBPS.

Over the past year, Reserve Bank Governor Lesetja Kganyago has repeatedly voiced his support for lowering South Africa’s inflation target.

Currently, the Reserve Bank and its Monetary Policy Committee have a target inflation range of 3% to 6%. Its focus is often on aiming for the middle of this range, 4.5%.

However, support has grown for a lowering of this target and a move away from the range.

Not only would this be more in line with international standards, but it could also see increased price stability, lower inflation, and eventually greater economic growth.

Roodt said that, if the target is lowered, he would expect the National Treasury to set the target at 4%, and perhaps lower it even further in the future.