No immediate plan to bailout SOE, as government wants to extend R350 grant

Enoch Godongwana image via EWN

South Africa's Medium-Term Budget Policy Statement (MTBPS) has signaled tax hikes totaling R15 billion to be announced in the February 2024 Budget. Finance Minister Enoch Godongwana budgeted another year of the R350 monthly Social Relief of Distress grant, which now ends in March 2025, with the condition that the government pursues broad social security reform. This grant extension is an essential response to social protection that the MTBPS hammers home – 61% of the non-interest government spending goes to the social wage through health, education, housing, and grants.

Godongwana defended cuts totaling some R21 billion, even if overall spending increased by R10.3 billion. Those cuts were less than the R28 billion government underspent last year and less than the R36 billion underspent two years ago. The security cluster stood out as a beneficiaries of new MTBPS allocations. Police received R3.33 billion more, with detectives receiving R295.5 million to boost resources in this struggling service that missed around half its performance targets in the previous 2022/23 financial year.

Controversially, SAPS protection services received R79.4 million more, with the bulk of that, or R52.4 million, going to presidential and VIP protection. Crime intelligence, mired in controversies, gets R43.3 million more. Defence, which generated R751 million from various peacekeeping missions, receives an additional R1.34 billion, overwhelmingly for staff costs. Home Affairs calls a R1.31-billion increase; it developed just over R1-billion from issuing passports and intelligent IDs.

Much of Godongwana’s enforced juggle arises from lower-than-estimated tax collections – R56.8 billion – mainly at the end of the commodity boom. Rising debt service costs further aggravate this. The central problem is low economic growth. Frequent power cuts make it hard for firms to do business while deteriorating rail freight and slow port operations mean fewer goods are transported to markets here and abroad.”

Economic growth is expected to hit 0.8% in the current financial year. With gross debt at 77.7% of GDP, the budget deficit is now 4.9%. To boost revenue, the government is set to borrow R553.7 billion a year for the next three years, according to the MTBPS.

Key to the push for effective and efficient public spending was the reconfiguration of the state that’s to unfold over the next three years. The focus is on eliminating overlaps and duplications, whether larger departments could absorb programs and projects, and clarity on legislative mandates. Recommendations are being formulated on closing programs and entities in this reconfiguration push headed by the National Treasury and the Presidency together with Planning, Monitoring and Evaluation, and Public Service and Administration.

In the pre-MTBPS briefing, Godongwana signaled President Cyril Ramaphosa could make “concrete” announcements in the 2024 State of the Nation Address. A post-election government could enact at least some of these reconfiguration measures. The 2024 Budget will announce tax increases to raise an additional R15 billion and a new mechanism through which private sector investors and multilateral institutions can co-invest with the government for selected infrastructure projects.