Finance minister Enoch Godongwane delivered a strong budget that commits government to appropriate spending levels given the weak economic outlook.  This is positive for business, which needs reassurance that fiscal discipline will be maintained, despite pressure for increased spending from many quarters of government.

He was realistic that economic growth is going to remain subdued in the short term. The effects of the weak economy over the past year were reflected in a sharp deterioration in tax revenue collection for 2023/24 to R1.73tn, R56.1bn lower than estimated in the 2023 Budget.

The minister estimated the budget deficit for 2023/24 to worsen from 4% to 4.9% of GDP, pushing debt service costs up by R15.7bn to R356bn, taking more than 20% of revenue. “We needed to see that government’s debt levels are under control and that there is a plan to improve them,” says BLSA CEO Busisiwe Mavuso. “I am pleased to see that there will be a primary surplus this year – that is a strong indicator to business that government is delivering on managing its debt levels.”

Minister Godongwana expects debt to peak at 75.3% of GDP in 2025/26.

Another weapon in his arsenal to control debt was to “introduce a reform” of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). He said the state would draw down R150bn of the GFECRA balance “once we have ensured that sufficient buffers are available to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised”.

Mavuso says while it is concerning that government has to resort to this to relieve pressure on its finances, it was important that it be done with strict and credible conditions that make clear that the function of foreign reserves is to protect the country from international crises and maintain its credibility in the international financial system. “It is not a free money pot for government bailouts.”

Tax

One important feature of the budget is the absence of significant tax hikes, outside of some bracket creep and the regular “sin tax” hikes. Significantly, he did not increase the fuel levy, recognising the risk of increasing pressure on household budgets.

Mavuso says: “Behavioural shifts in response to any higher tax rates would have undermined collections. The only tax that could reliably have been increased to raise additional revenue is VAT, a regressive tax that affects the poor the most and that was always unlikely in an election year.”

Infrastructure

BLSA is extremely pleased with the progress the minister announced in fundamentally reforming infrastructure financing and delivery mechanisms, which BLSA has long called for as reforms are crucial to facilitate public-private partnerships (PPP) and streamline approval processes.

The amendments to the PPP regulatory framework were gazetted earlier this week and Minister Godnongwana said they aim to reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, formulate clear rules for managing unsolicited bids and strengthen the governance of fiscal risk. He also emphasised the importance of creating clearer mechanisms for accountability, cooperation and coordination, as wel as new financing instruments including infrastructure bonds and concessional loans. He also said a flow-through tax vehicle for specific infrastructure projects, similar to trusts and other investment vehicles, was being considered.

BLSA is heartened by the minister’s statements and is still studying the gazetted amendments and preparing its formal response.

Electric vehicles

Minister Godongwana announced an important measure to accelerate the production of electric vehicles. He said government would introduce an investment allowance for new investments from 1 March 2026 which will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year. This incentive adds to the support under under the Automotive Production Development Programme. Government has also reprioritised R964 million over the medium term to support the transition to electric vehicles.

“This is encouraging,” says Mavuso. “The slow pace of policy development has frustrated the vehicle manufacturing sector but this should help accelerate the process.”

NHI

R1.4bn was allocated for the national health insurance plan mainly to prepare structures for its establishment. BLSA has stated before that this bill is unworkable because there is no capacity or funding to implement it and it will be embroiled in litigation on several fronts including its constitutionality.

Social wage

The fact that there was no major shift in spending on the social wage is testament to National Treasury’s disciplined approach, especially in an election year. There were some increases to the amounts of grants for certain beneficiary groups while “work is under way” to improve the social relief of distress grant in April.

BLSA congratulates Minister Godongwana for a solid budget with a realistic approach to addressing the country’s core problems while maintaining a credible path to reducing our sovereign debt. That remains critical, says Mavuso. “By holding firm against populist measures, we remain on track to haul ourselves out of our subinvestment-grade or credit ratings, which remain as a severe handbrake on our economic growth, but whose effects are largely hidden.”