Godongwana’s big hurdle

In Finance Minister Enoch Godongwana’s upcoming Budget Speech, he will need to tread a thin line between maintaining essential spending and avoiding reliance on excessive borrowing.

Citadel chief economist Maarten Ackerman expects the upcoming Budget to focus on balancing growth and fiscal sustainability, attracting investment, and tax and revenue strategies.

The Finance Minister is making this speech against the backdrop of persistent economic challenges and a constrained fiscal environment.

“The key theme for this year’s budget will likely be balancing expenditure and revenue in a low-growth environment, without the ability to raise taxes or increase debt significantly,” Ackerman said.

He explained that the government needs to tread a thin line between maintaining essential spending and avoiding reliance on excessive borrowing.

It must ensure that the debt to GDP levels stabilise over the next three years while managing expenses such as the public sector wage bill will be crucial.

Furthermore, he said that the government must fast-track structural reforms to remove red tape and promote growth in South Africa.

This will increase business confidence and attract global investment in transport, energy and manufacturing.

“Streamlining regulations for private sector participation in infrastructure, easing licensing constraints, and providing targeted tax incentives will encourage investment and improve long-term economic stability.”

“The policy framework is in place; decisive implementation is needed now.”

Furthermore, it is likely that the government will adjust the indirect tax to gain more revenue.

This may happen by adjusting Value-Added Tax (VAT) structures or revising tax policies affecting high-net-worth individuals.

However, Ackerman said that it is unlikely that the already overtaxed populous will see increased tax rates.

“With limited fiscal flexibility, this budget must focus on efficiency and curbing unnecessary expenditure while fostering an environment that supports sustainable economic growth.”

Investec and Deloitte’s panels discussing the expectations for SONA also said that direct tax will not be adjusted.

Unlike Ackerman, Deloitte’s panellists expressed doubt about the possibility of a wealth tax because wealthy people do not gain any benefits from the tax they pay.

This is because the wealthy do not use public health care, they pay school fees and they pay for their children to go to university.

Additionally, Investec treasury economist Tertia Jacobs said that personal income tax is becoming destructive to the South African economy.

She explained that most people’s salaries get adjusted annually for inflation, whereas the tax bracket does not necessarily.

This results in people moving up into higher tax brackets who cannot afford it.

Investec chief economist Anna Bishop said the government will rely on economic growth to earn higher tax revenues.

This higher revenue will go towards settling the major government debt.

Jacobs said that if the government stabilises the economy, sentiments about South Africa will already be much more positive.

She said the current debt-to-GDP ratio is expected to peak at between 75% of 77%.

Investec chief investment strategist Chris Holdsworth said people expect deterioration, and if the economy does not deteriorate further, investors will look upon South Africa favourably.

Furthermore, the Investec panellists expect the government to make progress in addressing the freight crisis, as they said they would in the SONA.

This is based on the proof that the government successfully stopped load-shedding and addressed the energy crisis as it had promised in SONA 2024.

The Deloitte panellists were also positive about the progress being made in the background to address the freight crisis at state owned enterprises such as Prasa and Transnet.

Experts think that the correct structural reforms are being implemented.

However, Deloitte associate director for business tax Mamohlwa Mohlola said she does not know where the government will get the money to spend on structural reforms and infrastructure that need to be added.