South Africa's Finance Minister will deliver his budget speech to Parliament on 21 February 2024.

The Minister's speech will be delivered against the following backdrop:

  • pedestrian economic growth of between 0.7% - 0.8% in 2023 (lower than the 0.9% projected in the February 2023 Budget);
  • ongoing energy and logistics constraints;
  • an increasing debt to GDP ratio (projected to stabilise at 77.7% of GDP in 2025/2026 compared to the 73.6% of GDP in 2025/2026 forecast in the February 2023 budget);
  • government borrowing crowding out the private sector (government's forecast is that it will borrow R554 billion each year over the next three years);
  • high domestic interest rates negatively impacting local demand and consumer and business confidence;
  • debt service costs (interest) consuming 20 cents of every rand spent by Government;
  • a higher current account deficit of about 3% in 2024;
  • low economic growth forecasts (averaging about 1.46%) over the 2024-2026 period;
  • lower forecast global economic growth (reduced from 3.1% to 2.9%);
  • global challenges such as war and geopolitical instability, elevated inflation and interest rates, weak output in Western Europe and slowing growth in China, and lower commodity prices.

Government has responded to some of these challenges by:

  • seeking to improve Eskom's operational performance (evidenced by a higher energy availability factor), funding Eskom and unbundling it;
  • increasing private sector investment in energy generation and attending to reforms of the energy sector;
  • seeking to improve Transnet's operational and financial performance and attending to reform of the freight rail sector;
  • increasing investment in infrastructure;
  • seeking to increase efficiency, effectiveness and rationalise the State/State programmes; and
  • adopting fiscal policy that seeks to protect growth, stabilise public finances, and protect the vulnerable and front-line services. This the government has sought to do by running primary budget surpluses in 2023 (revised down to R24.4 billion) and forecast at R309 billion over the period 2024-2026.

From a tax perspective the following is pertinent (when compared to the 2023 budget projections):

  • gross tax revenue is estimated to be R56.8 billion lower;
  • corporate tax collections are expected to be R36 billion lower due to lower mining tax profits (with a resultant lower dividends tax forecast of R3.6 billion);
  • VAT collections are expected to be R25.6 billion lower due to higher VAT refunds (specific excise duties are also forecast to be R3.7 billion lower);
  • personal income tax (R6.4 billion), fuel levy (R1.6 billion), customs duties and ad valorem excise duties (R5.4 billion) are forecast to come in higher.

In the circumstances the Minister of Finance is likely to continue to fund its 2024 expenditure using large amounts of debt with moderate tax rate increases (in the context of Government requiring hundreds of billions of rand which simply cannot be met out of increasing tax rates).

Our view is that the Minister of Finance will raise the anticipated tax revenue increase of R15 billion through a combination of increases in personal income tax (bracket creep), and indirect taxes such as sin taxes and/or fuel levies. We do not foresee any increase to the VAT rate though.

Let's see what 21 February 2024 brings!

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