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IOL News
20-05-2025
- Business
- IOL News
Expert insights on Enoch Godongwana's upcoming budget speech in South Africa
Experts have mixed feelings as Finance Minister Enoch Godongwana prepares to deliver his third expected budget speech on Wednesday. Image: Pixabay As South Africa braces for Finance Minister Enoch Godongwana's third budget speech on Wednesday, a wave of expert opinions reveals a landscape marked by both cautious optimism and pronounced concerns. With rising economic pressures and a growing budget deficit, Godongwana faces the complex task of generating revenue without curbing growth. Old Mutual chief economist Johann Els highlighted the anticipated revenue shortfall following the scrapping of a planned Value Added Tax (VAT) increase. Els estimated a loss of around R13.5 billion for the current year, with an alarming three-year total that could reach approximately R75bn. 'This will have to be made up for; Treasury will have to revise their gross domestic product (GDP) growth forecast downwards; they have it at 1.9% for 2025, but most forecasts have GDP around 1.5%,' he said. The ramifications of this budget speech extend beyond just lost tax revenue. Els said the budget speech was more than just a VAT increase that needed to be made up for. 'It is crucial that the government sticks to the deficit targets that they set in the first two budgets. Investors and rating agencies would not like it if the government tries to make up for the loss in revenue by borrowing more. It is crucial that they stick to the budget deficit target of 4.6% for this year, easing lower over the next few years to -3.5%. The primary surplus target of +0.9% rising to +2% over the next three years should be maintained. Crucially, the debt-to-GDP ratio peaking this year at 76.2% should be maintained. I think there needs to be significant expenditure cuts in this budget.' Professor Raymond Parsons, an economist at the North-West University (NWU) Business School, choed the sentiment that this budget could provide a much-needed opportunity. 'The third budget stands a good chance of being a successful one. It should benefit from the robust debate around the VAT controversy, which identified new options on both the spending and revenue of the budget to better 'balance the books'. The credibility of the budget will depend upon its ability to do two key things,' he said. Parsons added that the government needed to stick close to its original goal of a debt-to-GDP ratio of 76.2%, and second, strongly reflect what is now needed to meet the Government of National Unity's commitment to a 3% job-rich GDP growth target in the medium term. Neil Roets, CEO of Debt Rescue, welcome the confirmation that VAT will remain at 15%, sparing families from yet another blow, but said they remained concerned about the possibility of proposed increases in fuel levies and sin taxes. Roets said that equally troubling was the persistent budget deficit. 'The possibility of turning to 'stealth' measures such as bracket creep or frozen medical aid credits only shifts the burden onto consumers. We urge Minister Godongwana to prioritise spending efficiency rather than add to household strain,' he said. Benay Sager, Executive Head of DebtBusters, said that their expectation was spending cuts across the different departments as there just was not enough money to go around. 'We expect tax brackets to remain as they have been, and as a result of bracket creep, there will be more money coming in. We also expect additional taxes to be announced on things like, potentially, crypto and crypto trading and so on,' he said. Casey Sprake, economist at Anchor Capital, said that the central challenge of the third iteration of Budget 2025 liesd in how effectively the government responded to several mounting fiscal pressures. Sprake added that to offset the negative fiscal impacts, the government is likely to dial back some of the new spending introduced in the previous two Budget 2025 updates. 'In particular, increased allocations for frontline services are expected to be trimmed. However, Treasury is likely to protect infrastructure spending, positioning it as central to efforts aimed at boosting long-term economic growth,' Sprake said. Weekend Argus
IOL News
19-05-2025
- Business
- IOL News
Experts weigh in as South Africa prepares for critical budget speech 3. 0
Experts have mixed feelings as Finance Minister Enoch Godongwana prepares to deliver his third expected budget speech on Wednesday. Image: Pixabay As South Africa braces for Finance Minister Enoch Godongwana's third budget speech on Wednesday, a wave of expert opinions reveals a landscape marked by both cautious optimism and pronounced concerns. With rising economic pressures and a growing budget deficit, Godongwana faces the complex task of generating revenue without curbing growth. Old Mutual chief economist Johann Els highlighted the anticipated revenue shortfall following the scrapping of a planned Value Added Tax (VAT) increase. Els estimated a loss of around R13.5 billion for the current year, with an alarming three-year total that could reach approximately R75bn. 'This will have to be made up for; Treasury will have to revise their gross domestic product (GDP) growth forecast downwards; they have it at 1.9% for 2025, but most forecasts have GDP around 1.5%,' he said. 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 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. Next Stay Close ✕ The ramifications of this budget speech extend beyond just lost tax revenue. Els said the budget speech was more than just a VAT increase that needed to be made up for. 'It is crucial that the government sticks to the deficit targets that they set in the first two budgets. Investors and rating agencies would not like it if the government tries to make up for the loss in revenue by borrowing more. It is crucial that they stick to the budget deficit target of 4.6% for this year, easing lower over the next few years to -3.5%. The primary surplus target of +0.9% rising to +2% over the next three years should be maintained. Crucially, the debt-to-GDP ratio peaking this year at 76.2% should be maintained. I think there needs to be significant expenditure cuts in this budget.' Professor Raymond Parsons, an economist at the North-West University (NWU) Business School, choed the sentiment that this budget could provide a much-needed opportunity. 'The third budget stands a good chance of being a successful one. It should benefit from the robust debate around the VAT controversy, which identified new options on both the spending and revenue of the budget to better 'balance the books'. The credibility of the budget will depend upon its ability to do two key things,' he said. Parsons added that the government needed to stick close to its original goal of a debt-to-GDP ratio of 76.2%, and second, strongly reflect what is now needed to meet the Government of National Unity's commitment to a 3% job-rich GDP growth target in the medium term. Neil Roets, CEO of Debt Rescue, welcome the confirmation that VAT will remain at 15%, sparing families from yet another blow, but said they remained concerned about the possibility of proposed increases in fuel levies and sin taxes. Roets said that equally troubling was the persistent budget deficit. 'The possibility of turning to 'stealth' measures such as bracket creep or frozen medical aid credits only shifts the burden onto consumers. We urge Minister Godongwana to prioritise spending efficiency rather than add to household strain,' he said. Benay Sager, Executive Head of DebtBusters, said that their expectation was spending cuts across the different departments as there just was not enough money to go around. 'We expect tax brackets to remain as they have been, and as a result of bracket creep, there will be more money coming in. We also expect additional taxes to be announced on things like, potentially, crypto and crypto trading and so on,' he said. Casey Sprake, economist at Anchor Capital, said that the central challenge of the third iteration of Budget 2025 liesd in how effectively the government responded to several mounting fiscal pressures. Sprake added that to offset the negative fiscal impacts, the government is likely to dial back some of the new spending introduced in the previous two Budget 2025 updates. 'In particular, increased allocations for frontline services are expected to be trimmed. However, Treasury is likely to protect infrastructure spending, positioning it as central to efforts aimed at boosting long-term economic growth,' Sprake said. Visit:
The Citizen
02-05-2025
- Business
- The Citizen
Budget 3.0 forces government to face all the cans it kicked down the road
Make the cuts – stop squeezing taxpayers and stop borrowing. There are at least three expenditure reviews 'that have been gathering dust' – it's time to 'blow off the dust' and see what they contain. Picture: Shutterstock Government is now at the end of the road where all the cans that have been kicked down over the years are gathered and waiting to be dealt with. There is no more room to increase borrowings, and the value-added tax (Vat) fiasco clearly demonstrated that raising taxes is not an option. Budget 3.0 is forcing government to make the difficult decisions that have been ignored for far too long. Finance Minister Enoch Godongwana has this time promised formal consultation with the Financial and Fiscal Commission, 'thorough consultations' with all the political parties in the government of national unity (GNU), and cabinet approval before presenting his third budget for 2025 on 21 May. Leading up to the tabling of the budget, National Treasury must revise economic assumptions, generate updated fiscal projects, and recalculate revenue projections and tax implications. The 0.5% increase in the Vat rate is now off the table, scrapping the projected additional income of R13.5 billion but gaining R2 billion by not expanding the list of zero-rated products. The country needs targeted cuts, and taxpayers need bang for their buck. In Budget 2.0, the government wanted to raise R19.5 billion in additional income tax from individuals through no inflationary adjustment to medical tax credits and no adjustment to tax brackets and rebates. 'One wonders whether political parties have placed this on the negotiating table,' asks Charles de Wet, tax executive at ENSafrica. ALSO READ: Treasury might have to revisit spending priorities now that VAT is off the table — IMF Tough times Webber Wentzel tax consultant Des Kruger says it is going to be a tough time. He warns that government may still reach a deadlock because of the difference in priorities among the GNU partners. 'All the minister can do now is to reallocate the income that he expects to collect without the Vat increase. He must look at cuts to balance the books.' During the public participation process leading up to Budget 1.0 and Budget 2.0 several issues of concern were raised and remain unaddressed given the outcome of the 12 March budget proposals. The issues include National Treasury's overoptimistic growth forecasts, which do not consider the 'myriad of challenges' facing the country. This results in optimistic revenue estimates. There have never been any proposals for meaningful expenditure cuts. Dawie Roodt, chief economist at the Efficient Group, told BizNews that government cannot even perform 'symbolic' spending cuts like cutting expenditure on the blue-light brigades. De Wet says the calculations on budget allocations normally take months. 'It is not something that you do quickly on the back of a cigarette box.' ALSO READ: Godongwana consents to court order against VAT increase Cuts, but not austerity South Africa does not need an austerity budget where there are expenditure cuts across the board. The country needs enough doctors, nurses, teachers and police officials. 'We are in the difficult position of low economic growth and that creates the need for austerity, but it does not mean haircuts across the board,' says De Wet. There are at least three expenditure reviews that have been gathering dust. It is time to blow the dust off them to see if there are recommendations that will have short-term beneficial effects. De Wet says there are several possibilities, but many of the measures cannot be implemented overnight. One area that requires closer attention is the more than 20 Sector Education and Training Authorities (Setas). All Setas have operational structures that cost money, and many are simply outsourcing the training because of a lack of capability. The question remains how much money simply slips through the outsourcing cracks. Another issue is the renegotiation of the Southern African Customs Union agreement, including measures that would allow member countries Botswana, Lesotho, Namibia, and eSwatini to adapt to fiscal impacts. ALSO READ: Where will the minister find the money to make up for scrapping the VAT increase? The 'tax gap' A lot of faith is placed in the South African Revenue Service (Sars) to close the 'tax gap' that is estimated to be close to R800 billion. Godongwana has announced additional revenue allocations of R7 billion to Sars over the medium term. Taxpayers are frustrated with Sars and its processes. It is all good to improve processes and introduce more artificial intelligence to become a modern and sharp revenue authority, but people want a warm body to interact with. De Wet says in many instances improved systems have increased the administrative burden on taxpayers and discouraged foreign direct investments because of the difficulty of doing business in SA. Roodt warns against more funds being allocated to Sars to increase revenue collections. He told BizNews that he is against any measures to give more money to the minister of finance. 'The only way to force politicians to spend less money, is to give them less money,' he is reported to have said. For many years, taxpayers have heard about Sars going after the 'low hanging fruit', says De Wet. There can be no more low-hanging fruit. Maybe it is time for Sars to look at new orchards to collect its fruit from. Sars has identified key 'under-resourced areas' – including illicit trade, syndicated tax crimes, and aggressive tax planning by large businesses and high-net-worth individuals. De Wet hopes negotiations before 21 May between government and its coalition parties will be transparent to avoid any surprises. 'Although one cannot expect complete agreement between the parties, one expects consensus on what is in the interest of the country.' There is no more room for political posturing. This article was republished from Moneyweb. Read the original here.
The Citizen
24-04-2025
- Business
- The Citizen
Economists welcome scrapping of VAT increase
Scrapping the VAT increase will slightly affect inflation, but government will have to find the money elsewhere to balance the budget. Economists have welcomed the scrapping of the VAT increase but also warn about the fiscal implications. Frank Blackmore, lead economist at KPMG, says scrapping the VAT increase means that the economy is spared a general increase in prices due to the VAT increase. 'This means consumers will have marginally more money or disposable income to spend as they choose, which is a good thing given the cost-of-living pressures largely due to sub-optimal service delivery and price pressures from regulated prices are already a reality for most South Africans.' However, he points out that it also means that the estimated revenue of between R10 billion to R13.5 billion, depending on whether zero-rated items are considered or not, would now not be collected requiring cuts in expenditure elsewhere in the budget to make up for it. 'Hopefully, these expenditure cuts can be made to non-critical service delivery areas, such as public sector marketing, catering, travel and personal protection budgets, as well as reviewing the size of cabinet as opposed to public services such as health, education, safety and security.' ALSO READ: A R1 billion U-turn: Scrapping the VAT increase leaves no winners, just absolute chaos Reversal of VAT increase shows GNU works Maarten Ackerman, chief economist at Citadel says the good news about the reversing of the VAT increase is that it first of all shows that the Government of National Unity (GNU) survived this kind of gridlock. 'I think it is very important for South Africa that we could achieve that. It will probably make the GNU stronger going forward in terms of working together to find solutions for the country's money problems.' With the VAT increase out of the equation, what about inflation? Ackerman says it will be slightly positive for inflation, but even before the VAT increase was scrapped, the inflation data came out this week at 2.7%, screaming for a rate cut from the Reserve Bank. Farzana Botha, senior communications manager at Sanlam Risk and Savings, says Sanlam welcomes government's decision to withdraw the VAT increase and recognise it as a timely relief for consumers amid ongoing economic challenges. 'Maintaining the VAT rate at 15% helps preserve household purchasing power, especially for lower- and middle-income families who are most affected by cost-of-living pressures. This move supports consumer confidence and spending, which are vital for economic recovery and growth. 'However, we acknowledge the fiscal implications of this decision, including the anticipated revenue shortfall of approximately R75 billion over the medium term. It is crucial for the government to implement prudent expenditure adjustments to maintain fiscal stability.' ALSO READ: VAT U-turn: How businesses felt the brunt of political roulette Decision to scrap VAT increase was the right one under circumstances Prof Raymond Parsons, economist at the NWU Business School, says the decision not to increase VAT on 1 May is the right one in the current circumstances. 'After an intensive debate, an increase in VAT was eventually seen as unnecessary and economically and politically it also failed to command wide support. 'An unchanged VAT rate brings welcome relief and certainty to business and consumers and to that extent it is confidence-building. However, this does not mean that South Africa is fiscally out of the woods. Future risks to fiscal policy remain.' He says successfully managing the fiscal risks now depends on a credible fiscal strategy to balance the books being embodied in the third budget to be presented shortly. Parsons points out that the advantages of the delayed budget and the controversy that surrounded it are three-fold. 'They identified better options available to balance the budget on both its spending and tax sides will subject future budgets to a more intensive consultative process and again emphasised the urgent need for much higher economic growth. 'It is now even more necessary, especially given current global developments, for South Africa to speedily accelerate key structural reforms to expand the economy. Fiscal sustainability must be reinforced by stronger economic growth that enlarges the tax base and boosts tax revenues.' ALSO READ: Treasury reverses proposed VAT hike, will remain at 15% Reversing VAT increase good for economy and consumers Evádne Bronkhorst, senior manager for tax consulting at Forvis Mazars in South Africa, welcomed Treasury's decision to withdraw the proposed VAT increase. She believes this move, although it creates a R75 billion revenue shortfall over the medium term, is a step in the right direction for consumers and the broader economy. 'This decision helps to ease inflationary pressures and prevents additional strain on consumer spending, especially for low-income households.' However, she warns that the financial gap it creates will increase pressure on Sars to drive revenue collection through improved debt collection and compliance measures and by broadening the tax base technology. Bronkhorst also cautions that rolling back the already-implemented VAT changes will place a heavy administrative burden on small businesses. Many had already adjusted their systems and pricing and will now need to reverse those changes. 'While the reversal brings some short-term relief, it is not enough to truly stimulate the South African economy. We urgently need expenditure reallocation and fiscal accountability that leads to real, sustainable change.' ALSO READ: Where will the minister find the money to make up for scrapping the VAT increase? No more VAT increase good news, but not a solution Alan Mukoki, CEO of the South African Chamber of Commerce and Industry (SACCI), also welcomed the decision to scrap the VAT increase, but says while this is a positive move it is by no means a resolution of the bigger problem with South Africa's finances. 'We still have a serious problem with how to deal with the budget and in particular the deteriorating debt servicing costs to revenue. The situation is not sustainable and we appreciate the difficulty the minister of finance has faced in balancing his revenue and expenditure options. 'We do not underestimate the complexity of the problem. This is no longer about the political parties or GNU. This is South Africa's problem that will require all key stakeholders to spend more time looking for solutions instead of amplifying problems and differences.' SACCI was opposed to the VAT increase because it would make goods and services more expensive and this will contribute to the loss of business confidence and aggravate slow economic growth and unemployment. ALSO READ: Economic ramifications of VAT increase: higher inflation, lower GDP Not enough work went into decision for VAT increase 'We are not yet convinced that enough expert work has been undertaken to investigate and look at expenditure throughout the government service. Other than a budget being a budget, it should also serve as a management information tool that gives insight that leads to management action. 'Data and analytics will help us to get a grasp of what is really happening with expenses and at this time we are not clear on this aspect. To get the level of granularity required would need an external resource to undertake the work.' Mukoki points out that Treasury staff are engaged with their day to day work and may not be the appropriate resource in this case. 'This work should encompass all levels of government and not just national departments as local government actions have a significant impact on the economy. We need this work to be commissioned as a matter of urgency.'
IOL News
24-04-2025
- Business
- IOL News
VAT victory should see Finance Minister Enoch Godongwana adjusting projected growth rate
Frank Blackmore, lead Economist at KPMG, told Business Report that he thinks this was good news for most South Africans as it spares them an additional stress of increasing prices on numerous goods throughout the economy in an environment where they already facing a very high cost of living. Image: Se-Anne Rall / IOL On Thursday morning South Africans woke up to the news that Finance Minister Enoch Godongwana has withdrawn the proposal to hike vat by 0.5 basis points this year to be followed by a potential 0.5% next year. Frank Blackmore, lead Economist at KPMG, told Business Report that he thinks this was good news for most South Africans as it spares them an additional stress of increasing prices on numerous goods throughout the economy in an environment where they already facing a very high cost of living. He added that the VAT U-turn was down to mainly two reasons. "The first reason was obviously the social backlash that was received on this proposal and the second was that the revenue authorities managed to collect an extra sort of R10 billion from the previous year. Therefore, there was no need to institute a vat hike to get this additional revenues," Blackmore said. "Even in the planning, the additional revenues that would have come from this half a percentage point of our time could have been around R13.5 billion but if you take the zero rated goods into account that reduces to around this R10 billion making it a moot point for this budget. I think it's important to note that South Africa is also facing a lot more stress given the pressures put on it and by the global trade war that is currently ongoing," Blackmore said. "I think the next thing from the budget that will be adjusted will be the growth rate in Minister Godongwana's budget that had been tabled. The growth rate for this year for South Africa was at 1.9% but given the events in the US of the imposition of tariffs as well as our local missteps in terms of policy and management, I think we'll be lucky to get close to that 1% growth this year. Therefore, expectations of revenue would be paid back along with that growth rate for this particular year. I think it's also important that with the cancellation of this proposed vat hike that the extra money is found through expenditure, savings, and on unnecessary areas of expenditure and does not come importantly from service delivery which is relied on by most South Africans in terms of health, education, social grants and other public sector delivery that is expected," the economist added. "I think it is vital for that to happen that costs or cut and expenditures is left alone in order to create some kind of momentum in terms of economic growth in future," Blackmore added. The Congress of South African Trade Unions (Cosatu) on Thursday said it applauds the Minister's announcement that government will scrap the proposed VAT hike of 0.5%. The trade union added that this will provide relief to millions of workers who have been struggling to cope with the rising costs of living. "Working- and middle-class families spend most of their income on transport and electricity whose increases far exceed CPI. A VAT hike and not adjusting Personal Income Tax (PIT) brackets for inflation would simply make their lives even more unbearable. Whilst this year's Parliamentary budget processes have been anything but elegant, we are pleased that government led by the African National Congress, has shown the humility to listen to COSATU, other organisations and society, and the political maturity to respond decisively. These are signs of a vibrant democracy and a signal that government must listen to the frustrations of working-class communities," Cosatu stated. Meanwhile, Abigail Moyo, spokesperson of the trade union UASA also welcomed the announcement. "The decision is a victory for the hardworking people of South Africa, particularly the poorest of the poor, against the backdrop of limited growth prospects in an uncertain geopolitical and global environment. We have seen all investment strategies presented before, as well as the increased taxes over the years. Yet, the government has not succeeded in growing the economy or reducing unemployment and the national debt to a level that harnesses economic growth and development," Moyo said.
