The Treasury is set to increase borrowing, cut expenditure, and implement tax hikes to offset a revenue deficit projected at nearly R57 billion rand. A rising trend in deficits and debt is evident, with the gross debt expected to hit 77.7% of GDP by 2025-26, up from 73.6%. Over the upcoming three years, the proportion of debt-service costs relative to revenue will grow from 20.7% in 2023-24 to 22.1% in 2026-27, as highlighted by Godongwana. The upcoming year's debt costs stand at approximately R385.9 billion rand, a figure comparable to Eskom's total outstanding dues.
Sales of domestic bonds are projected to rise by 14% in this financial year. The consolidated budget deficit is anticipated at 4.9% of the GDP for this year, a growth from the 4% predicted in February. The minister is poised to reveal tax hikes come February, aiming for an added R15 billion rand in revenue, though the sources remain unspecified. This marks the first tax increase in several successive years.
The economy's growth is projected to average around 1.4% over the next three years.
While there's no allocation for Transnet's bailout, provisions have been made for a pay raise for state workers, and the Covid-era welfare payment will persist for an additional year. "The SRD grant has shown resilience. Although I've previously indicated it ends annually, the termination has now been openly set for March 2025. However, its actual conclusion in 2025 shouldn't be taken for granted," emphasizes Godongwana.
Commenting on the situation, Pravin Gordon pointed out the absence of a bailout for Transnet, South Africa's struggling logistics entity. The firm's insufficient coal and commodity transport is partly to blame for the government's tax revenue shortfall. However, the omission might be justifiable if there's a strategic plan for the company's revival.
The Congress of South African Trade Unions, the nation's foremost labor faction and a political ally, expressed their disappointment. The Treasury, in their opinion, missed an opportunity to present an impactful MTBPS to rejuvenate the lukewarm economy, support the less privileged, and strengthen the state. Instead, it offered a modest financial report with drastic budget cuts and marginal departmental increases over the forthcoming three years.
Contrary to expectations, bond yields have begun to decline slightly. The bond and rand market's reaction indicates that the debt augmentation was anticipated. The market's response was unexpected, given the budget's apparent detriment to the bond and rand sectors. Yet, the rand has surged after the finance minister's address, and bond yields have declined. Does this follow the "buy the rumor, sell the fact" adage? At a minimum, the budget dispels recent financial speculations. The rand is trading around R18.60 currently.
Finally, Godongwana notes that the terms set on Eskom's debt relief will serve as a precedent for other state enterprises seeking financial aid. The support will diminish if the company falls short of its objectives. Over the past decade, underperforming utilities and businesses have drained taxpayers of hundreds of billions of rands.
