Latest news with #GoldandForeignExchangeContingencyReserveAccount
Eyewitness News
3 days ago
- Business
- Eyewitness News
Treasury rules out further drawdowns from GFECRA to boost revenue
CAPE TOWN - The National Treasury has ruled out any further drawdowns from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to bolster revenue. In last year's budget, the finance minister announced a R100 million withdrawal from the account to pay off some of its debt. The account, held by the South African Reserve Bank (SARB), is meant to protect the country against foreign exchange fluctuations. There is currently around R390 billion in the account. Twenty-five million rand will be drawn down in each of the next two financial years. Responding to public comments on the budget on Friday, the head of the Treasury's Asset and Liability Management, Ravesh Rajlal, told Parliament's finance committees it was not an option to take out more money. "There is an agreement that we have with the SA Reserve Bank, and what we need to do is that gets updated on a yearly basis, so I think at the time of the medium-term budget policy statement, we will make further announcements in that regard." Rajlal said it was also not preferable to renegotiate the country's debt because it would send a distress signal to the markets. "So, it's important to highlight that we don't go into a renegotiation of our debt, because that will result in a significant impact on our debt stock. What will happen then, obviously, is the ratings agencies will downgrade us and obviously that will have serious repercussions for our borrowing programme."
IOL News
21-05-2025
- Business
- IOL News
Cut spending and the budget will pass, Godongwana told ahead of speech
Finance Minister Enoch Godongwana is under pressure to steer clear of austerity measures and ensure that SARS is properly funded, and introduce a wealth tax. Image: Supplied As Finance Minister Enoch Godongwana prepares to present the Budget for the 2025/26 financial year on Wednesday, he finds himself balancing on a tightrope amid mounting public pressure. Some want the South African Revenue Service (SARS) to be properly funded to collect more tax, while others persist that Godongwana should introduce wealth tax and draw down from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). However, Godongwana has previously stated that South Africa already had a multitude of instruments that tax wealth comprehensively, while the National Treasury stated that GFECRA was designed to protect the credibility, independence, and stability of SARB and the economy. It will be the third time Godongwana tables the Budget after he postponed the initial presentation in February following warnings from the DA to withdraw its support. He scrapped plans to increase VAT amid a court case with the DA and the EFF, as well as negotiations with the ANC and smaller political parties. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad Loading Business Leadership South Africa CEO Busi Mavuso said a technical question that must be answered was what expenditure cuts will have the least damage on growth or service delivery. 'I hope the Finance Minister will be able to announce credible steps to reduce expenditure, and I hope we quickly see the political support to do so. That is what will give comfort to investors that we are a country that can politically manage its finances appropriately,' she added. Investec's treasury economist Tertia Jacobs said the scrapping of the VAT increase necessitated a reduction in spending to maintain a neutral impact on the Budget deficit. 'The focus now will be on where the said spending will be lowered, and the ability of the so-called 'GNU' to craft a way forward that both demonstrates its priorities and allows for consensus,' said Jacobs. 'We think that the Minister of Finance could announce a spending review in the October 2025 Medium-Term Budget Policy Statement (MTBPS).' Rise Mzansi leader Songezo Zibi said with increasing borrowing and a VAT increase out of the question, there was one thing for the minister to do. 'It is to cut expenditure over the next three years, and that is the increment. Initially, he had proposed about R173 billion. He reduced that in March to R140 something billion, and he is going to reduce it again to plug the hole. 'If we all understand that, then the Budget should be able to pass easily because that is the only option Parliament has left the Finance Minister with,' said Zibi. The EFF demanded during its Monday march that Budget cuts be reversed and funding be increased for public health, basic education, policing, and defence. The Red Berets also demanded a progressive tax on high net-worth individuals and legislation on anti-tax avoidance laws, and building the capacity of SARS to recover billions hidden in tax havens. ActionSA MP Alan Beesley called for Godongwana to present a Budget that serves all South Africans. 'Budget 3.0 must protect hard-pressed South Africans from higher taxes, ensure SARS is properly funded, address the rampant corruption in government departments and SOEs, and lay the foundations for meaningful economic growth,' Beesley said. The GOOD Party said it will support the fiscal framework and work in good faith to identify constructive alternatives to VAT hike and personal income tax bracket creep. 'GOOD's preference remains clear that revenue measures should target those with the greatest means, not those with the least,' secretary-general Brett Herron said. Herron said GOOD Party backed a temporary drawdown from the GEFECRA, and the introduction of the wealth tax targeting ultra-high-net-worth individuals to begin addressing South Africa's extreme inequality. The Institute for Economic Justice (IEJ) said there was consensus that the upcoming Budget must cement the break from spending cuts and utilise the national Budget to achieve inclusive growth. 'The growing political consensus against budget cuts, including from the main partner in the GNU, the ANC, is a vital step forward, but without progressive revenue measures to fund this shift, the opportunity to adopt a pro-poor and pro-growth budget for the first time in more than a decade will be lost,' IEJ tax and budget policy researcher Zimbali Mncube said. The IEF said the immediate measures to raise revenue included drawing down from GFECRA, removing tax breaks for high-income earners, and restoring the corporate income tax. Federation of Unions of South Africa (Fedusa) said the government should reject austerity as a fiscal policy response and instead adopt a more inclusive and progressive budgetary framework. Fedusa also threw its weight behind the introduction of a wealth tax on high-net-worth individuals to help redistribute wealth and ease pressure on the tax base without undermining the purchasing power of ordinary South Africans. BOSA acting spokesperson Roger Solomons said Godongwana should boldly prioritise economic growth, job creation, and fiscal responsibility to kick-start progress and change. 'The choices made in this Budget must reflect the urgent realities of our people,' said Solomons. Cape Times
Mail & Guardian
23-04-2025
- Business
- Mail & Guardian
Budget: Why a VAT increase is the least bad option
The Gold and Foreign Exchange Contingency Reserve Account is not a piggy bank that can be used to solve South Africa's fiscal problems. South Africa is once again faced with a difficult fiscal decision, and once again, the country is leaning toward magical solutions over sustainable ones. As political pressure mounts to reverse the proposed 0.5% VAT hike, the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) has re-entered public debate. Many are calling for the government to dip into this reserve to avoid raising taxes. But that would be a mistake. The GFECRA is not the solution to our fiscal problems. A VAT increase, while deeply unpopular, is the least damaging and most responsible option available right now. The GFECRA is a valuation account in the South African Reserve Bank that records the gains and losses on the country's gold and foreign exchange reserves as a result of currency fluctuations. When the rand depreciates, those foreign reserves are worth more in rand terms, resulting in a gain. When the rand strengthens, a loss is recorded. Crucially, the GFECRA is not a pool of liquid cash. It is not a piggy bank. Settling a portion of the GFECRA balance essentially realising some of those gains requires agreement between the Reserve Bank governor and the minister of finance. In 2024, a R250 billion settlement was agreed upon, with a portion transferred to the treasury. That helped manage debt and reduce borrowing costs. But the scale of that intervention cannot be repeated without undermining the Reserve Bank's financial integrity. To use the GFECRA again, the Reserve Bank would have to reduce its buffer against future losses. That is risky in a volatile global environment, and would send the wrong signal to markets about South Africa's commitment to prudent monetary policy and institutional independence. The GFECRA must remain a contingency buffer not a fiscal tool of convenience. The uncomfortable truth is that the government has only three options for increasing cash flow. It can cut spending, which is already politically treacherous and threatens critical public services. It can borrow more, which is fiscally reckless when South Africa is spending more than R382 billion a year just servicing existing debt more than it spends on health or policing. Or it can raise taxes. Of these three, raising VAT though unpalatable is the least damaging and the most effective in the short term. It is broad-based, difficult to evade, and comparatively easy to administer. While no option is painless, this is the only one that doesn't compromise the country's long-term fiscal stability. Yes, VAT is regressive. Yes, it affects the poor. But South Africa has an extensive list of zero-rated basic foodstuffs such as brown bread, maize meal and vegetables that shield the poor from the worst effects of a VAT increase. Moreover, targeted social grants and pro-poor spending can help offset the effect. Unlike income tax or corporate tax, VAT is hard to avoid and offers a reliable stream of revenue. And in the short term, reliability matters. The proposed 0.5% increase, combined with bracket creep, is estimated to raise R31.5 billion. That will keep the budget intact and support debt stabilisation. Delaying or scrapping this increase in favour of a politically expedient raid on the GFECRA would be short-sighted. Worse, it would send a dangerous message: that South Africa is unwilling to make difficult fiscal decisions and would rather erode the Reserve Bank's independence. This is not to say a VAT hike is a good solution. It isn't. But it is a necessary one, given the context. The real challenge is to grow the economy, broaden the tax base and reform our public finances in a sustainable way. That work cannot begin if we start by hollowing out institutional safeguards or avoiding hard choices. Using the GFECRA might feel like a clever escape. But it is not a long-term answer. The VAT increase, unpopular as it may be, is the honest path and honesty, in fiscal terms, is what South Africa needs most right now. Tara Roos is a policy writer, researcher and political analyst.
