Latest news with #Budget2.0
Daily Maverick
a day ago
- Business
- Daily Maverick
SA almost has a Budget — finance committee adopts fiscal framework, despite MK and EFF rejections
After multiple false starts, a key aspect of the 2025 Budget was adopted in Parliament on Wednesday, with the support of the ANC and DA. When the second iteration of the 2025 Budget came before Parliament's finance committee in April, the divisions in the Government of National Unity (GNU) were on full display. The Democratic Alliance (DA) refused to support the adoption of the fiscal framework and it only moved through the committees and then the National Assembly thanks to the support of non-GNU parties such as ActionSA. On Wednesday, 4 June, the GNU's largest members, the African National Congress (ANC) and DA, finally found each other and the fiscal framework was passed by a vote of seven to three. The passing of the fiscal framework is a key step in the budgeting process. This framework establishes economic policy and revenue projections and sets the overall limits to government spending. This report must be adopted within 16 days after Finance Minister Enoch Godongwana tables the Budget. While the DA opposed the fiscal framework in Budget 2.0, Wednesday's situation was different, with both the ANC and DA supporting the measure against the opposition of the Economic Freedom Fighters (EFF) and uMkhonto Wesizwe (MK) party. Wednesday's meeting was briefly halted to find a bigger venue in Parliament to accommodate all the MPs, journalists and officials, as well as ensure it was recorded, in line with MPs' requests. There were several comments and queries by MK party MPs, including axed finance minister Des van Rooyen and former Eskom boss Brian Molefe. At one point, Molefe said the fiscal framework should include the expanded unemployment rate (43.1%) rather than the narrow definition (32.9%), but his suggestion was shot down. The MK and EFF also criticised the increase in the fuel levy, with Molefe describing it as 'regressive' and 'not pro-growth'. On Tuesday, the Western Cape Division of the High Court dismissed the EFF's urgent bid to block the fuel levy increase. Issues were raised on whether the Budget was that of an austerity budget, denied by the ANC – an answer the MK party and EFF continued to reject. It was questioned several times during the meeting whether MPs were making points simply to grandstand 'because there were cameras'. This seemed evident when EFF MP Omphile Maotwe raised objections over a section of the report that dealt with 'not providing bailouts' to state-owned entities (SOEs), rather than 'capitalising SOEs'. Maotwe said she was at Transnet when she claimed it had been successful under the management of fellow finance committee member Brian Molefe – the former Transnet CEO turned State Capture accused, and now a member of the MK Party on its parliamentary benches. Next week, the National Assembly will vote on whether to adopt the fiscal framework in a sitting at the Cape Town International Convention Centre. When the fiscal framework is passed, other steps in the budgeting process include the passing of the Division of Revenue Bill and the Appropriation Bill. During the tabling of the fiscal framework in the National Assembly in April, the ANC appeared jubilant when it was passed without the DA's support, while the DA had harsh words for the ANC and other parties who supported that version of the Budget. It's unlikely there will be such acrimony next week. DM
The Citizen
21-05-2025
- Business
- The Citizen
Sensible or underwhelming? Economists react to Godongwana's Budget 3.0
After the minister tried to push though VAT increases in his first two budget attempts, Budget 3.0 will still affect citizens' pockets. It was indeed third time lucky for Minister of Finance Enoch Godongwana when he delivered Budget 3.0 in parliament on Wednesday afternoon with the blessing of all the parties in the government of national unity. Frank Blackmore, lead economist at KPMG, says probably the most impressive thing about Budget 3.0 was that we now have a budget at all, although the contents were a bit underwhelming. 'There were many questions about what we are going to do with the R75 billion deficit over the medium-term period with no VAT increase. That was answered by this budget in the form of: some increases in the fuel levy of 15-16 cents per litre; an increase in borrowing with debt going up to 77.4% of gross domestic product (GDP), 1.2% more than in Budget 2.0; no expansion of the zero-rated food basket; reduced expenditure over the Medium Term Expenditure Framework (MTEF) period; the budgets of frontline services such as health and education growing, but by less than the previous budgetary amounts; some additional investment will go to Sars to switch those assets in order to collect more revenue. ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Not much thought about issues confronting SA Blackmore says it seemed that the budget was focused on these points without dealing with the issues confronting South Africa at this point. 'There were reductions in a lot of areas that were obviously necessary due to lower revenues, except for the public sector wage bill and debt deficit which are increasing.' He says the negatives in Budget 3.0 are: the increased debt and deficit taking more resources away from frontline services and economic growth initiatives, such as the social wage the reduction in the growth of non-interest expenditure no real increase in spending to grow the economy a mention that new tax proposals will come in for 2026 to cover an additional R20 billion gap for the full cost for that period. He did not find much on the positive side but says the public private partnerships and continuing structural reforms, as well as Operation Vulindlela Phase 2 are positive, but are nowhere near large enough to make a meaningful difference at this point to the growth outlook. ALSO READ: Godongwana cuts government spending to offset VAT shortfall Budget 3.0 a more realistic picture of SA's macroeconomic outlook Jee-A van der Linde, senior economist at Oxford Economics Africa, says Treasury's downwardly revised GDP growth projections and higher debt-to-GDP ratios paint a more realistic picture of South Africa's macroeconomic outlook. He says it is a positive takeaway that gross loan debt projections have not increased since March and Treasury still expects debt levels to stabilise, although at a higher level. Gross loan debt is expected to increase from R5.69 trillion in 2024/25 to R6.82 trillion in 2027/28. 'Meanwhile, debt-service cost projections were lowered by R1.8 billion over the MTEF period compared to the March 2025 Budget. South Africa's debt service costs remain alarmingly high at R1.3 trillion over the MTEF and we expect it to continue rising rapidly over the forecast period. 'South Africa's deteriorating debt-to-GDP ratio remains a concern and we continue to maintain that gross government debt will reach 80% of GDP in the near term. The sustainability of South Africa's fiscal outlook hinges on economic growth accelerating in the near term, as fiscal consolidation will prove challenging amid elevated spending pressures.' Was it third time lucky for Godongwana? Van der Linde says Budget 3.0 is more sensible and depicts a stark picture of South Africa's finances. 'Markets will welcome Treasury's commitment to fiscal consolidation. 'While not of its own making, Treasury's credibility has been unduly dented as a result of the budget wrangling. Political parties have been climbing over each other trying to claim credit for Treasury reversing course on the tax proposals that scuppered the first and second budget attempts.' ALSO READ: Budget 3.0: Opposition parties clash over impact on poor Very high execution risk Patrick Buthelezi, economist at Sanlam Investments, says the execution risk for the budget remains very high as many spending pressures require funding, such as closing the gap created by a freeze on PEPFAR support, political party funding leading up to the local government elections and national social dialogue. 'Given the projected economic growth outlook, the pressure on the fiscus can be expected to continue. The finance minister hinted that revenue-raising measures might be introduced in the 2026 budget. The GNU needs to reach consensus on viable revenue-raising proposals, including expenditure cuts.' Tertia Jacobs, treasury economist and fixed income specialist at Investec, says for her a key takeaway is that the GNU and Treasury continue to stick to fiscal consolidation. 'Any new increases in spending must be financed by higher tax increases and the new spending increases are allocated between infrastructure and frontline services as well as Sars getting a bit more money because they will become more important in widening the tax base in coming years. 'All in all, the budget is probably as good as we can get in the context of sluggish growth, but these are indications that the GNU and the ANC are willing to work together. ALSO READ: Budget 3.0: Alcohol and cigarette prices will increase — here's by how much Commitment to stabilising government debt Dr Elna Moolman, head of South Africa macroeconomic research at the Standard Bank Group, says in line with their long-standing expectation, all three budgets this year remained committed to stabilising government's debt-GDP ratio. 'The negative revenue impact of backtracking on the VAT increases as well as the weaker economic growth trajectory is counteracted, as we expected, by a combination of revenue and spending adjustments. 'The confirmation of government's commitment to fiscal consolidation, with the debt-GDP ratio peaking this year and bond issuance kept unchanged, should provide some reassurance to financial markets, as we expected. 'The macroeconomic policy reviews and fiscal reforms, alongside ongoing traction with Operation Vulindlela's growth-supportive reforms, also underpin likely fiscal and growth improvements in the medium term. 'However, entrenched investor concerns about adverse fiscal and growth risks will not be negated and notwithstanding the imminent peak in the debt-GDP ratio and unchanged nominal debt trajectory, investors will emphasise yet another increase in the debt-GDP trajectory that will limit the potential positive financial market impact from any positive fiscal developments.'
Daily Maverick
21-05-2025
- Business
- Daily Maverick
State of the spend: Charting Budget 3.0
You'd be forgiven for losing track. South Africa is now on Budget Speech 3.0 in just four months. Fiscal policy keeps morphing to meet political pressures and economic realities and the National Treasury's latest figures reveal some subtle shifts and trade-offs. Here is the visualised story behind the numbers, taking a look at where every R100 of your tax goes, what's driving up debt, and how the scrapped VAT proposal rewrote the books in-between budgets. Highlights from 2025's third budget reveals a larger negative budget balance than Budget 2.0, tabled 12 March, and a loss in GDP of about R2-billion since National Treasury's first try in February. After the proposed VAT hike was scrapped following legal and political pressure, Finance Minister Enoch Godongwana announced on 21 May that a general fuel levy will come into effect on 4 June. No changes were made to other personal income tax or any tax brackets, but a R20-billion tax plan is set to be revealed in Budget 2026, unless SARS can strap up and rake in some extra rands. Speaking of tax… have you ever wondered exactly what the government does with the money that's dutifully subtracted from your pay cheque every month? Looking at the National Treasury's consolidated spending by functional and economic classification, we've analysed which departments score and which departments only manage to rake a few cents. The debt-to-GDP ration of the country is an expression of how manageable the country's debt is. Budget 3.0 revealed the highest metric in this category since 1994. The country's GDP is also expected to grow only 1.4% in 2025. The country's gross borrowing requirement, or borrowing cost, saw an increase of R6.24-billion as Treasury had to stretch out their hands to plug the hole left by the withdrawn VAT hike. This budget projects consolidated spending growth averaging 5.4% annually, from R2.4 trillion in 2024/25 to R2.81 trillion in 2027/2028. Departments have largely retained their baselines, while the Treasury aimed to keep service delivery areas protected. In case you wanted to know how Budget 3.0 stacks up against its previous iterations… Spot some changes in decisions about personal income tax rebates, VAT rates dropping from 2% to 0.5% then to none at all, and a public-sector wage bill whose allocated spending over the next three years has remained unchanged, even three budgets later. DM
The Citizen
20-05-2025
- Business
- The Citizen
Budget 3.0: pressure and expectations are building
Economists expect that the minister of finance will cut the economic growth expectations in Budget 3.0 that he delivers tomorrow. With Budget 3.0 loading, economists expect that Minister of Finance Enoch Godongwana will deliver it on Wednesday afternoon with the blessing of the government of national unity (GNU) this time. The pressure is building along with economists' expectations. However, Godongwana will be walking a tightrope to balance politics and fiscal sustainability after two failed attempts in February and March due to opposition to the proposed VAT increases, Patrick Buthelezi, economist at Sanlam Investments, says. 'Political tension persists within the [GNU], particularly between the ANC and the DA, raising serious concerns about its durability.' He pointed out that since Budget 2.0, the economic outlook has deteriorated due to global protectionist trade policies and unusually high economic policy uncertainty. 'We expect the finance minister to revise the gross domestic product (GDP) growth forecast downward from the March estimate of 1.9%, in addition to cancelling the VAT hike. Consequently, the revenue shortfall will be higher than the projected R75 billion over the medium term.' ALSO READ: Budget 3.0: Godongwana under pressure to make up for downgraded growth No political appetite to increase taxes in Budget 3.0 Buthelezi said there is clearly no political appetite to increase taxes, judging by the two failed budgets. 'Therefore, maintaining the government expenditure plans presented in budget 2.0 will result in a wide budget deficit and higher borrowing. The deficit will probably be wider in the near term, albeit the medium-term trajectory is expected to improve. 'National Treasury's fiscal strategy is to limit borrowing and focus on stabilising elevated government debt by running the primary budget surplus. They will probably stick to that approach. 'In addition, debt servicing cost is very high, absorbing nearly 22% of the main budget revenue. Adding more debt would further divert resources from critical expenditures to interest payments, eroding fiscal space.' He said Sanlam Investments expects Budget 3.0 to focus more on expenditure cuts. 'However, there is limited time for a comprehensive expenditure review. Treasury would have done extensive work to present areas where savings are feasible during the medium-term budget policy statement in October. ALSO READ: Budget 3.0: time to fix our economy – BLSA Godongwana expected to keep revenue-raising measures 'The revenue-raising measures announced in March will probably be maintained, such as not adjusting personal income tax brackets for inflation and introducing an above-inflation increase in excise duties. We are not expecting a new tax policy, but rather a continued effort to strengthen the South African Revenue Service (Sars).' He said the persistent pressure on government finances is not a revenue problem, but rather a low economic growth trap. 'Government should prioritise growth-promoting areas, such as investment outlined in phase 2 of Operation Vulindlela to achieve a high growth trajectory in the future. Without an improved economic growth path, the debt trajectory will continue to rise. 'Finally, the GNU must collaborate more effectively to prevent volatility in the budget process and a potential fiscal credibility crisis. Overall, there are still a lot of unfunded expenditure pressures which raise execution risk.' ALSO READ: Budget 3.0: will it be third time lucky for Godongwana? Budget 3.0 not the only thing that needs GNU agreement Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say although it is an anomaly that Godongwana has to try to deliver the national budget for the third time this year, it may become a feature of the GNU. 'The original February budget proposed a 2% VAT increase from 15% to 17%. The revised March budget introduced a phased approach with a 0.5% increase to take effect on 1 May 2025, followed by another 0.5% increase on 1 April 2026, increasing the Vat rate to 16%. 'Scrapping the proposed VAT hikes left government with limited fiscal options. It now faces the challenge of identifying alternative revenue sources or significantly reducing and reprioritising expenditure. Against a challenging economic backdrop, achieving stronger revenue growth will be increasingly complex.' The FNB economists pointed out that since the start of the year, the global environment has been marked by heightened uncertainty around trade and economic policy, primarily driven by US tariffs and escalating trade tensions. As a result, they said, global as well as domestic growth forecasts have been revised down from the assumptions that would have underpinned the first two budgets tabled on 19 February and 12 March. ALSO READ: Economic activity slows in April as economy struggles Budget 3.0 allocations will have to be adjusted They also pointed out that the International Monetary Fund (IMF) lowered its global growth projections to 2.8% for 2025 and 3.0% for 2026 from 3.3% previously. 'Our forecast for South Africa's real GDP growth has been revised to 1.3% in 2025 and 1.6% in 2026, from 1.9% at the start of the year. 'These weaker growth projections, coupled with the VAT freeze, point to a likelihood of a sizeable tax revenue shortfall.' Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano said government earmarked R46.7 billion for infrastructure investment over the 2025 Medium-Term Expenditure Framework in the previous budget statements, with: R23.4 billion for the 2025 public-service wage agreement and its carry-through costs, R11 billion for early retirement costs, and R35.2 billion for the Covid-19 Social Relief of Distress Grant (SRD). 'While adjusting allocations related to the public-service wage agreement and SRD grant will be difficult as [its continuation] is another recent outcome of judicial rulings, there may be some flexibility to scale back early retirement costs. 'Infrastructure investment could also be scaled down, but without escalated attraction of private sector savings, such spending reprioritisation would be concerning.' ALSO READ: Minister of finance says no to wealth tax Budget 3.0 must also include fiscal consolidation They say other spending allocations included R23.3 billion for an above-inflation increase in social grants, as announced in the 19 February budget, which was later revised down to R8.2 billion in the 12 March budget. 'Similarly, provisional allocations for frontline services were reduced from R75.6 billion to R70.7 billion between the two budgets. To offset a potential revenue gap, these allocations could face further reductions.' The FNB economists said in the face of these challenges, government must still demonstrate a credible path towards fiscal consolidation. 'However, there is a growing risk that the primary surplus, government's key anchor for stabilising debt, will be under significant pressure. 'As a result, public debt may peak at a higher level than the 76.2% of GDP projected for 2025/26 in the 12 March budget. Our current baseline view incorporates these risks and is reflected in our sovereign rating outlook, which suggests that an upgrade by S&P Global of South Africa's local and foreign currency ratings to BB and BB+ may be delayed until next year.'
Daily Maverick
19-05-2025
- Business
- Daily Maverick
A R75bn question mark hangs like the sword of Damocles over Godongwana
It's important to note that both the domestic and global macroeconomic outlook have worsened since the withering of Budget 1.0 and Budget 2.0 on the political vines. The bottom line is that South Africa is running out of fiscal room. Over the medium term — meaning the next three years — there is a R75-billion question that Finance Minister Enoch Godongwana will need to answer on Wednesday, 21 May 2025, when he makes an unprecedented third attempt at tabling the Budget. With the proposed VAT hikes now off the table, there is a R75-billion shortfall forecast over the next three years that needs to somehow be plugged, and the fragile South African economy has few faucets that can still be tapped. That leaves just three options — tax hikes, spending cuts or increased borrowing. Among economists, there is consensus that there is virtually no more scope for hikes to income or corporate tax, though the fuel tax levy could be played with to siphon some more liquidity for the Treasury. What this means for you If you are a taxpayer, no relief is in sight but there should be little additional pain — in the short run. In the longer run, a failure to keep the debt-to-GDP ratio from surging above current levels is needed if you want tax relief down the road. Faster levels of economic growth are also critical to reduce your future tax burden and to create jobs. At the end of the day, the Budget is about your hard-earned money and how the government spends it. Beyond that, it comes down to belt tightening or the debt market. 'There will likely be spending cuts and increased borrowing,' Jee-A van der Linde, senior economist at Oxford Economics Africa, told Daily Maverick. Van der Linde pointed out that ratings agencies such as S&P — which last week affirmed South Africa's BB- credit rating with a positive outlook — forecast that the country's gross debt to gross domestic product (GDP) ratio will reach 80% this year. That is in sharp contrast to the Treasury's latest projection of the debt to GDP ratio peaking at 76.2% for 2025/26. 'If you look at what the ratings agencies expect, like S&P, of an 80% debt to GDP ratio and yet they maintain a positive outlook, that tells me that the Treasury may increase borrowing. It's already being priced in by the ratings agencies,' Van der Linde said. Still, South Africa can no longer borrow and spend like a drunken sailor. 'The National Treasury will have a hard time finding sustainable revenue sources in the current economic environment,' Van der Linde said. Spending That brings into sharp focus the need for a blade to cut spending. 'We think that the Minister of Finance could announce a spending review in the October 2025 Medium Term Budget Policy Statement. We have pencilled in a net increase in spending of R30.0-billion compared to R61.6-billion in Budget 2.0 in FY25/26, consisting of a combination of infrastructure and 'other',' Tertia Jacobs, Investec Treasury economist, said in a pre-Budget note. 'In contrast, new spending on the frontline could be tied to a spending review or reprioritisation of existing expenditures.' Jacobs also noted while 'some fiscal slippage is expected… this may not translate into an increase in bond supply due to higher available cash balances'. Jacobs flagged two developments since Budget 2.0 — an opening cash balance that is R20-billion higher, and an R80-billion surge in the value of the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account because of red-hot gold prices. Last year the Treasury announced it would draw down R150-billion from this source over the next three years, and it could conceivably be tapped again. The R75-billion shortfall has also been questioned by some. 'To preemptively justify expenditure cuts, National Treasury has deliberately exaggerated the revenue implications of removing the originally proposed VAT increase. A reversal of VAT implies a R2.7-billion gap in the current fiscal year and a R60-billion gap over the medium term, instead of the R75-billion widely quoted,' the Institute for Economic Justice (IEJ) said. To avoid an 'austerity budget', the institute suggests removing tax breaks linked to pensions and medical aid contributions for high-income earners, restoring the corporate income tax to 28% from 27%, and dipping back into the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account. Domestic and global macroeconomic outlooks have worsened It's also important to note that both the domestic and global macroeconomic outlooks have worsened since the withering of Budget 1.0 and Budget 2.0 on the political vines. The Treasury's rose-tinted forecast for economic growth of 1.9% this year is bound to be shaved. The International Monetary Fund (IMF) cut its 2025 forecast for South Africa on this front last month to 1.0% from 1.5%. The IMF also pared down its global growth forecast for this year to 2.8% from 3.% largely because of the chaos and uncertainty triggered by US President Donald Trump's ham-fisted tariffs and trade wars. The bottom line is that South Africa is running out of fiscal room and that R75-billion question is the sword of Damocles hanging over Budget 3.0. DM
