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Did the budget speech address SA's current challenges?

22 February 2024 Photo SUPPLIED

Opinion article by Eugene Msizi Buthelezi, nGAP Lecturer in the Department of Economics and Finance, University of the Free State.

Finance Minister Enoch Godongwana delivered the 2024 National Budget Speech on Wednesday 21 February 2024. The speech centred around promoting economic growth, addressing inequality, and ensuring sustainable development in South Africa. Minister Godongwana emphasised the importance of expanding the national pie through economic measures while also focusing on the distribution of resources to achieve social and economic justice. Monetary policy spillover to fiscal policy was evident, as the minister referenced the utilisation of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). This budget speech came at a time of significant economic challenges in South Africa, including the following:

Falling economic growth projection, reflecting that there are still persistent challenges in addressing unemployment, poverty, and inequality.
Eskom's financial woes and operational inefficiencies, which remain a critical concern.
Rising government debt, budget deficits, and debt-service expenses are among current pressing issues.
Tax adjustments, which are needed more than ever to bolster government revenue, alongside social grant increases to support vulnerable populations.
Public-private partnerships for economic growth, job creation, and enhanced productivity.

Domestic economy and fiscal outlook

The growth outlook for South Africa between 2024 and 2026 is expected to average 1,6%, indicating a shortfall of 3,4% from the targeted economic growth of 5% as outlined in the National Development Plan's vision for 2030. This discrepancy reflects the challenges facing the South African economy in addressing issues such as unemployment, poverty, and inequality. Nevertheless, the minister pointed out key policy initiatives in the budget speech. This included the implementation of measures to enhance procurement efficiency and promote local industrialisation. Moreover, structural reform in sectors such as electricity, logistics, water, and telecommunications to stimulate growth.

On the other hand, the elephant in the room – Eskom – remains a significant challenge in the South African economy. Eskom, the state-owned electricity utility, has been plagued by financial difficulties, operational inefficiencies, and power supply constraints, leading to frequent load shedding and disruption of economic activities. However, in the 2024 Budget Speech, Eskom was granted a debt-relief plan to alleviate its financial burden and allow the entity to focus on its core business operations. It was noted that Eskom's coal-fired power stations are being fixed and renewable energy projects are in the pipeline to promote and further enhance energy security. These interventions will ensure operational efficiency, enhance energy security, reduce reliance on fossil fuels, reduce the frequency of load shedding, and minimise disruptions to businesses and households. Despite this, Eskom may still require significant financial investments, potentially increasing the financial burden. Moreover, integrating renewable energy and restructuring Eskom's operations may face resistance or challenges in implementation, leading to transitional disruptions.

In terms of infrastructure, the minister pointed out that partnerships between the public and private sectors to finance projects are key to delivering infrastructure projects. It is expected that infrastructure investment will stimulate economic growth, create jobs, and boost productivity. However, large-scale infrastructure projects carry financial risks, including cost overruns, delays, and potential budget deficits that could strain public finances. Fiscal authorities have shown a lack of monitoring and evaluation, as the public is still awaiting a report on the generation of sustainable employment and infrastructure projects that have contributed to the overall economic growth, which is a point of concern. On the other hand, infrastructure investment may be vulnerable to corruption, mismanagement, and lack of transparency, leading to inefficiencies and suboptimal outcomes. These are some of the aspects that fiscal authorities need to look at and put necessary measures in place to ensure the success of infrastructure projects. Some of the key macroeconomic variables that were highlighted in the budget speech are the following:

The national government's debt, which is projected to reach approximately 75,3% of the Gross Domestic Product (GDP) by 2025/26.
The budget deficit for 2023/24, which is expected to worsen to 4,9% of the GDP.
The debt-service expenses which are anticipated to increase is now estimated at R356 billion, representing more than 20% of revenue – surpassing the budgets allocated for social protection, health, or peace and security.

Given the economic challenges reflected in these macroeconomic variables, the minister has indicated that immediate reform will be through the 30% utilisation of the GFECRA, which has grown to more than R500 billion. Therefore, the government plans to use R150 billion from GFECRA, expecting a decline of approximately R30,2 billion in government debt servicing costs over the 2024 Medium Term Expenditure Framework (MTEF). The use of the account is effective, because the account provides liquidity in times of need, allowing the government to meet its financial obligations without resorting to external borrowing. Given that the account resides with monetary authorities in the South African Reserve Bank (SARB), fiscal authorities will find that GFECRA has restrictions on utilisation, limiting the government's flexibility in responding to immediate financial needs or emergencies. Moreover, depending on the size and management of the GFECRA, it could impact market perceptions of the country's financial health and credibility.

Tax and revenue

The weak performance of the economy has been identified as a significant factor contributing to a sharp decline in tax revenue collection for 2023/24. It has been observed that tax revenue for 2023/24 is R56,1 billion lower than estimated in 2023. The minister highlighted the implementation of a global minimum corporate tax, which is projected to generate R8 billion in corporate tax revenue by 2026/27. Additionally, measures will be taken to target multinational corporations with annual revenue exceeding a certain threshold. General solutions for revenue generation were proposed, which included the following:

Focusing on excise duties for alcohol products, with increases ranging between 6,7% and 7,2% for 2024/25
A 4,7% increase in tobacco excise duties on cigarettes.

Implementing these tax proposals and improving revenue collection will boost government revenue, allowing for the funding of essential services, infrastructure projects, and social programmes. This enhanced revenue generation will also contribute to fiscal stability by reducing budget deficits and public debt levels over time. However, fiscal authorities must prioritise modernising tax administration and combating illicit activities to enhance tax compliance, ensuring that all taxpayers contribute their fair share.

Social security and government spending

In the budget speech, the minister demonstrated an awareness of the pressing realities confronting South African society by announcing adjustments to social grants in line with inflation. The grant changes included, among others

R50 increase to the foster care grant;
Child Support Grant increases from R510 to R530;
Older Person’s Grant increases by R90 on 1 April and R10 in October 2024; and
COVID-19 Social Relief of Distress Grant of R350.

However, it is crucial to recognise that these increases may still fall short of adequately addressing the needs of those living below the poverty line, especially considering the high levels of unemployment and the rising cost of living. Moreover, while there is a commendable effort to provide support through these grant adjustments, fiscal constraints pose significant limitations. The government must navigate carefully to ensure that these increases are sustainable within the broader fiscal framework. Balancing the imperative to support vulnerable populations with fiscal prudence is a delicate task, requiring careful consideration of both short-term relief measures and long-term fiscal sustainability. Ultimately, while the announced increases in social grants represent a step towards addressing the immediate needs of vulnerable communities, policy makers must continue evaluating and refining these measures to ensure they effectively alleviate poverty and inequality while remaining fiscally responsible. Other critical government spending was pointed out in the budget speech, including the following:

An additional R25,7 billion was allocated to the education sector’s wages.
Childhood development grants increased to R2 billion over the medium term.
The health sector to be allocated a total of R848 billion over the Medium-Term Expenditure Framework (MTEF) for health.
An allocation of R61,4 billion for employment programmes over the medium term.
A R7,4 billion for the Presidential Employment Initiative.

The effectiveness of government spending by increasing wages in the education sector is welcome, as it could attract and retain qualified educators. However, it is essential to consider whether these increases are accompanied by measures to address broader challenges within the education system. Simply increasing wages without addressing issues such as inadequate infrastructure, resource shortages, and administrative inefficiencies may limit the overall impact on educational outcomes. To maximise effectiveness, it is crucial for the government to also invest in building new schools, providing resources for the day-to-day running of schools, and implementing reforms to improve the quality of education.

On the other hand, regarding spending on employment programmes and initiatives to address unemployment, effectiveness will depend on fiscal authorities' design and implementation of these programmes. Allocating funds to employment programmes could potentially create job opportunities and reduce unemployment rates, particularly among artisans and recent graduates. However, there is still a need for alignment of employment programmes with the needs of the labour market, the provision of relevant skills training and support services, and the creation of sustainable job opportunities. Additionally, effective monitoring and evaluation mechanisms are essential to ensure that spending on employment programmes yields tangible outcomes.

In conclusion, the 2024 Budget Speech touched upon various critical challenges facing the nation, including economic growth constraints, Eskom's challenges, rising government debt, tax revenue shortfalls, and the need for social security enhancements. The budget speech regained the need to address these challenges effectively and pointed out the importance of ensuring that fiscal policies prioritise equitable distribution of resources and effective management of public finances. Key areas for fiscal policy focus included continued investment in infrastructure projects, coupled with public-private partnerships, which can stimulate economic growth, create jobs, and enhance productivity. It has been noted that enhancing revenue generation through effective tax policies, such as corporate tax reforms and excise duty adjustments, can bolster government revenue. On the other hand, social grant adjustments were deemed to be vital for supporting vulnerable populations, but efforts to address poverty and inequality should extend beyond grant increases. The speech acknowledged that investments in education, health care, and employment programmes are essential to promote inclusive growth and reduce socio-economic disparities.

Did the budget speech address current challenges? Yes, the 2024 Budget Speech addressed many of the current challenges facing South Africa. However, moving forward, fiscal authorities need to prioritise structural reforms, innovation, and inclusive economic development strategies to address South Africa's economic and social challenges effectively. Exploring opportunities for public-private collaboration, leveraging technology for efficient service delivery, and promoting entrepreneurship and small business development can contribute to long-term sustainable growth and prosperity. Additionally, maintaining a conducive policy environment, fostering investor confidence, and strengthening governance and institutional capacity are crucial for achieving lasting economic resilience and social progress.

The views presented here are mine, they do not represent the views and policy position of the institution I am affiliated with. I do this for community outreach as a person in academics only.

News Archive

Media: Sunday Times

2006-05-20

Sunday Times, 4 June 2006

True leadership may mean admitting disunity

In this edited extract from the inaugural King Moshoeshoe Memorial Lecture at the University of the Free State, Professor Njabulo S Ndebele explores the leadership challenges facing South Africa

RECENT events have created a sense that we are undergoing a serious crisis of leadership in our new democracy. An increasing number of highly intelligent, sensitive and committed South Africans, across class, racial and cultural spectrums, confess to feeling uncertain and vulnerable as never before since 1994.

When indomitable optimists confess to having a sense of things unhinging, the misery of anxiety spreads. We have the sense that events are spiralling out of control and that no one among the leadership of the country seems to have a definitive handle on things.

There can be nothing more debilitating than a generalised and undefined sense of anxiety in the body politic. It breeds conspiracies and fear.

There is an impression that a very complex society has developed, in the last few years, a rather simple, centralised governance mechanism in the hope that delivery can be better and more quickly driven. The complexity of governance then gets located within a single structure of authority rather than in the devolved structures envisaged in the Constitution, which should interact with one another continuously, and in response to their specific settings, to achieve defined goals. Collapse in a single structure of authority, because there is no robust backup, can be catastrophic.

The autonomy of devolved structures presents itself as an impediment only when visionary cohesion collapses. Where such cohesion is strong, the impediment is only illusory, particularly when it encourages healthy competition, for example, among the provinces, or where a province develops a character that is not necessarily autonomous politically but rather distinctive and a special source of regional pride. Such competition brings vibrancy to the country. It does not necessarily challenge the centre.

Devolved autonomy is vital in the interests of sustainable governance. The failure of various structures to actualise their constitutionally defined roles should not be attributed to the failure of the prescribed governance mechanism. It is too early to say that what we have has not worked. The only viable corrective will be in our ability to be robust in identifying the problems and dealing with them concertedly.

We have never had social cohesion in South Africa — certainly not since the Natives’ Land Act of 1913. What we definitely have had over the decades is a mobilising vision. Could it be that the mobilising vision, mistaken for social cohesion, is cracking under the weight of the reality and extent of social reconstruction, and that the legitimate framework for debating these problems is collapsing? If that is so, are we witnessing a cumulative failure of leadership?

I am making a descriptive rather than an evaluative inquiry. I do not believe that there is any single entity to be blamed. It is simply that we may be a country in search of another line of approach. What will it be?

I would like to suggest two avenues of approach — an inclusive model and a counter-intuitive model of leadership.

In an inclusive approach, leadership is exercised not only by those who have been put in some position of power to steer an organisation or institution. Leadership is what all of us do when we express, sincerely, our deepest feelings and thoughts; when we do our work, whatever it is, with passion and integrity.

Counter-intuitive leadership lies in the ability of leaders to read a problematic situation, assess probable outcomes and then recognise that those outcomes will only compound the problem. Genuine leadership, in this sense, requires going against probability in seeking unexpected outcomes. That’s what happened when we avoided a civil war and ended up with an “unexpected” democracy.

Right now, we may very well hear desperate calls for unity, when the counter-intuitive imperative would be to acknowledge disunity. A declaration of unity where it manifestly does not appear to exist will fail to reassure.

Many within the “broad alliance” might have the view that the mobilising vision of old may have transformed into a strategy of executive steering with a disposition towards an expectation of compliance. No matter how compelling the reasons for that tendency, it may be seen as part of a cumulative process in which popular notions of democratic governance are apparently undermined and devalued; and where public uncertainty in the midst of seeming crisis induces fear which could freeze public thinking at a time when more voices ought to be heard.

Could it be that part of the problem is that we are unable to deal with the notion of opposition? We are horrified that any of us could be seen to have become “the opposition”. The word has been demonised. In reality, it is time we began to anticipate the arrival of a moment when there is no longer a single, overwhelmingly dominant political force as is currently the case. Such is the course of history. The measure of the maturity of the current political environment will be in how it can create conditions that anticipate that moment rather than seek to prevent it. We see here once more the essential creativity of the counter-intuitive imperative.

This is the formidable challenge of a popular post-apartheid political movement. Can it conceptually anticipate a future when it is no longer overwhelmingly in control, in the form in which it is currently, and resist, counter-intuitively, the temptation to prevent such an eventuality? Successfully resisting such an option would enable its current vision and its ultimate legacy to our country to manifest in different articulations, which then contend for social influence. In this way, the vision never really dies; it simply evolves into higher, more complex forms of itself. Consider the metaphor of flying ants replicating the ant community by establishing new ones.

We may certainly experience the meaning of comradeship differently, where we will now have “comrades on the other side”.

Any political movement that imagines itself as a perpetual entity should look at the compelling evidence of history. Few movements have survived those defining moments when they should have been more elastic, and that because they were not, did not live to see the next day.

I believe we may have reached a moment not fundamentally different from the sobering, yet uplifting and vision-making, nation-building realities that led to Kempton Park in the early ’90s. The difference between then and now is that the black majority is not facing white compatriots across the negotiating table. Rather, it is facing itself: perhaps really for the first time since 1994. Could we apply to ourselves the same degree of inventiveness and rigorous negotiation we displayed leading up to the adoption or our Constitution?

This is not a time for repeating old platitudes. It is the time, once more, for vision.

In the total scheme of things, the outcome could be as disastrous as it could be formative and uplifting, setting in place the conditions for a true renaissance that could be sustained for generations to come.

Ndebele is Vice-Chancellor of the University of Cape Town and author of the novel The Cry of Winnie Mandela

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