Budget expectations in an election year

South Africans should brace themselves for higher government debt that will erode spending on social services even further. Their tax burden could increase in the new tax year, mainly because of little relief for fiscal drag.

The ‘good’ news is that tax experts are not expecting increases in individual and company income tax rates or an increase in the value-add tax (Vat) rate when Finance Minister Enoch Godongwana delivers his 2024 Budget later this month (21 February).



Another silver lining is that most of the adjustments in the fiscal position (lower growth expectations and lower revenue collections) were done in the October 2023 medium-term budget policy statement (MTBPS). Godongwana already announced the need to raise an additional R15 billion to fill the growing revenue gap.

There will hopefully be little deviation from the October announcements that could upset the markets, says Old Mutual Wealth investment strategist Izak Odendaal. Revenue collections for the current year will be R57 billion short of the 2023 budget estimates.

Read: Cautiously optimistic

Tertius Troost, senior tax partner at Mazars, says if government gives no relief for fiscal drag (increasing the tax brackets by inflation) it may have between R16 billion and R18 billion “to spare” and no need for tax rate increases.

“I do believe, given that it is election year, that government will provide some relief for the lower income groups.” Last year taxpayers received R15.7 billion ‘relief’ from fiscal drag.

Tax measures

Billy Joubert, senior associate tax director at Deloitte, says an additional R15 billion is not that much given the bigger picture. The South African Revenue Service (Sars) must collect tax revenue of R1.73 trillion in the current tax year and R1.85 trillion for the 2024/25 tax year.

The biggest challenge is rampant expenditure, despite low economic growth and dwindling revenue collections.

Joubert says there are basically three ways to grow the tax base.

Two involve taking the low road and either increasing tax rates or squeezing taxpayers even harder.

Read: Sars set to squeeze taxpayers for more

Increasing tax rates will be counter-productive since South Africans are by no measure “under taxed”. And it is all well and good to squeeze non-compliant taxpayers, but Sars is already squeezing taxpayers “pretty hard”.

Economic growth

The obvious thing for government to do is increase economic and employment growth, which will result in more tax revenue.

The biggest revenue generators remain personal income tax (R640 billion), company income tax (R300 billion) and Vat (R445 billion).

Total tax revenue for 2023 has been revised downwards to R1.73 trillion, resulting in a shortfall of R56.8 billion. The biggest drop in tax revenue was from companies and Vat.

Personal income tax for the year was revised upwards by more than 6%, mainly because of a “sustained recovery in earnings and higher bonus payments”.

Joubert would like to see doable plans to grow the economy and for government to spend more responsibly.



These are two aspects that can move the dial in the positive direction.

It is clear that this is “pretty much” top of mind for the minister and would reassure taxpayers, investors and ordinary South African citizens.

More debt

Odendaal says there is generally pressure on governments to spend money in an election year to keep voters happy. He does not expect large scale populistic expenditure.

“Our existing social grants are already a form of populism. However, I do not see any signs of populistic expenditure, in fact the message of fiscal consolidation will persist.”

Read: Kganyago sees 2024 elections among top risks for South Africa

There is no sign of the implementation of the National Health Insurance plan in the budget, and although the Covid-19 social relief grant has for all practical purposes become permanent, years of high inflation have eroded the real value.

Nonetheless, there is concern that the debt burden will increase by more than anticipated last February and even in October last year. In October the revised net loan debt for 2023/24 was R5 trillion, increasing to R5.5 trillion next year and R6 trillion in 2026 or almost 77% of gross domestic product (GDP).

“We have to prepare ourselves for an even heavier debt burden. I think we are rather looking at a figure of 80% and even 85% because of additional loans to fill the gaps,” warns Troost.

For every rand in tax collected, 20c is already being spent paying interest on our borrowings.

That figure will increase if we do not get a grip on debt levels, warns Odendaal.

“We have not reached crisis levels yet, but if that figure goes up to 40c out of every rand then the country is heading to the IMF …

“We have seen countries like Egypt, Sri Lanka and Pakistan heading that way. We do not want to get there.”

Read: NHI means 31% more tax and 69% less benefits for medical scheme members

William Murphy

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