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22 February 2024 Photo SUPPLIED
Eugene Msizi Buthelezi
Eugene Msizi Buthelezi, nGAP Lecturer in the Department of Economics and Finance, University of the Free State.

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

Questions about racial integration in residences answered
2007-07-31

Answers to frequently asked questions about the racial integration of student residences at the UFS

1. Why does the UFS want to change the current situation in the student residences?

There are many reasons why a new approach to placement in the student residences is necessary. However, the main reason is of an educational nature. As a university, the UFS should create an environment in its residences where students can learn to appreciate and respect the rich diversity that is on offer at the university. A university accommodates students from many different backgrounds in terms of race, language, religion, economic status, culture and other aspects. If a student can learn to appreciate the value in this rich diversity at university, he or she will also be able to appreciate the value of this diversity in the workplace and broader society.

The current situation of predominantly white and predominantly black residences has not been able to cultivate such an appreciation for diversity and respect for one another as human beings, and will not equip students with the knowledge and skills required to manage diversity.

Besides this, there are many other areas of life in the residences that need attention. For one, we need to urgently establish a human rights culture in the residences so that the rights of all students can be respected. We need to address the abuse of alcohol, provide disabled students with their rightful place, and last but not least, really entrench a culture of learning in student residences.

Let us make the residences places we can be proud of – places of learning, of diversity, of respect; places of growth and development. This is the ideal we should all strive to achieve.  

2. Why does the management want to force us to integrate?

It is a false argument to debate the issue in terms of “force”. Any decision by a University, or any other organisation, regarding matters of policy, rules and regulations implies a restriction on the choice of an individual and an obligation to comply.  What we should focus on is whether this decision of the Council is in the best interests of our students.

The management of the university believes that it has a responsibility to give students the best education possible, not only in terms of what you learn in the lecture rooms, but especially in the residences as well. The residences can be very powerful places of learning about matters of great importance, both academic and non-academic.

The parallel-medium language policy separates students into largely white/Afrikaans and black/English classes. Efforts are being made to bridge this divide in the classroom, but we can also try to eliminate it in the residences.

The university is committed to building a new culture for the entire institution that is based on values and principles – such as an academic culture, non-racialism, respect for human rights and diversity – among staff and students.

In the context of student residences, the application of these values and principles still allows substantial room for the voluntary exercising of choice by individuals as well as by Residence Committees, notably with regard to the placement of students (they can still place 50 percent of first-year students), as well as the determination of the future character and traditions of a diverse residence.

Furthermore, students can still choose their residences (subject to availability of places), can choose a roommate, and so forth.

3. What about freedom of association?

The rights we enjoy in a democracy must be balanced against other rights, as well as the laws of the country. This means that the right to freedom of association must be balanced against laws that make it illegal to discriminate against other people on the basis of race, language or religion, for instance.

Freedom of association pertains to the right of individuals to form voluntary organisations such as clubs or private boarding houses, or their right to join or not join existing organisations.  You exercise that right when you decide to become a student of the UFS, and again when you choose to live in one of its residences.

However, once you have decided to join an organisation voluntarily, you cannot subsequently demand that that organisation should provide a “club” or residence to your liking where, for instance, you only associate with your choice of co-members. You must accept the policies of that organisation.

In any case, how would that right of yours be balanced against the right of another individual who wishes to associate with a different set of co-members? (For instance – what about the freedom of a student to associate with students NOT from his own background, but indeed from another language, cultural, racial or economic background?) 

The constitutional right to freedom of association can, in any case, not be used to exclude or discriminate on the basis of race or religion (Section 18 of the Bill of Rights).

Besides, the new policy guidelines will still make provision for freedom of association. This right can be exercised freely within a diverse residence with regard to friendships, joint academic work, socialising, sport, etc.

4. Will residences not lose their traditions?

The University appreciates that there are many valuable elements of tradition in residences. However, we must bear in mind that the traditions and character of student residences have evolved and changed over time, and they will continue to evolve and to change. In addition, we do not need to accept all aspects of residence life purely on the basis of tradition, including the unacceptably high level of alcohol abuse and unsavoury, humiliating and discriminatory orientation practices. The new approach to integrated residences provides the opportunity to retain the positive aspects of the current traditions and character, but also to develop new traditions and give residences a new character.

We can now establish a tradition and a character for each residence that are reconcilable with the values of the University as a place of scholarship and are aligned with the human rights approach of our country’s Constitution, the laws of our country and the strengths and diversity of the students in a particular residence.

5. Have students been involved in this process? Is there a role for them to play after the decision has been taken by the Council of the UFS?

In the first semester of 2007, during two rounds of consultations, the primes, SRC and student organisations were consulted about the proposed new placement policy to increase diversity in residences. Some residences also made written submissions on the matter (such as Madelief, Soetdoring, Wag-'n-bietjie, Vergeet-my-nie, Emily Hobhouse). Other residences requested and were granted more time, but did not make any submissions in the end (such as Reitz and Armentum).

Management also had several meetings with the above-mentioned structures to hear first-hand from students their concerns and solutions regarding possible challenges presented by integration in residences.

During these interactions, several excellent ideas and proposals were put forward by students. These views had a definite impact on the eventual proposal that was taken to the University Council, in particular regarding the minimum level of diversity (30%) in junior residences and the fact that residences still want to have a say in the placement of students, rather than the placement decision being left in the hands of Management alone (hence the 50% placement portion of residences). Management values the effort that was put into the process by the primes and residence committees, and thanks them for their contributions.

However, it should be stressed that consultation should not be understood as a process of negotiation, nor does it imply that consensus must be reached. What it means is that Management must take a considered decision after hearing the views of stakeholders.

Management would like students to continue to provide input and ideas regarding the implementation details of the policy guidelines. Task teams have been established and students will be informed about how they can interact with the task teams on an ongoing basis.

6. But integration in the residences was tried in the past (in the late 1990s), and then it failed. Why will it work now?

Yes, the University of the Free State did integrate its residences as far back as 1993, and for a few years it worked. The UFS did it at that time and is now doing so again, because it is the right thing to do. Yet it is important to understand why the previous attempt at racial integration in residences was not successful.

Firstly, both black and white students were much polarised because of the apartheid past. Secondly, there was insufficient management support for students in the residences, the student leaders generally as well as residence heads, in terms of dealing with diversity and related issues. Thirdly, the institutional culture of the UFS and the residences in particular was not addressed as part of broader transformation and integration in residences, whereas it is now being addressed.

In addition, the current decision to integrate residences has the benefit of being implemented after several more years of integration in schooling, sport, workplaces and other aspects of life.

This decision is also based on Management’s commitment to give all the possible support it can to this process.

This is a very important initiative that the UFS is undertaking. Management, in co-operation with students, must ensure that it succeeds. Integrated residences that produce high-quality graduates equipped to deal with the challenges of the workplace and our society is a worthwhile ideal we should all strive to achieve.

If you would like to make a proposal regarding the implementation and practical aspects of the new policy, please send it to the following email address: rector@ufs.ac.za

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