What to expect from the 2024 medium-term budget tomorrow

Finance Minister Enoch Godongwana will deliver the medium-term budget policy statement (MTBPS) in Parliament at 14h00 on Wednesday (30 October), providing an update on the country’s finances and how they are being managed.

The MTBPS plays a vital role in the overall budget process as it sets out the policy framework for the budget presented every February.

It further updates the country on the National Treasury’s economic forecasts, adjusts government departments’ budgets, and makes emergency spending changes.

During the sitting, the minister will also table the Adjustments Appropriation Bill, the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, the Taxation Laws Amendment Bill, the Division of Revenue Amendment Bill, and the Tax Administration Laws Amendment Bill.

According to Investec treasury economist Tertia Jacobs, the MTBPS will outline how the new administration under the Government of National Unity (GNU) plans to allocate spending, potentially bringing changes to entities like the Post Office and Transnet.

“What this new GNU can achieve is very important,” Jacobs said, noting that markets and investors are watching.  

“We have seen a major rerating in the financial markets; for example, the rand has rallied, and government bond yields have declined in the aftermath of the formation of the GNU.”

This shift is important for government funding costs, which were previously high due to political uncertainty, not to mention the ongoing economic stagnation.

Jacobs explained that fiscal consolidation remains essential since South Africa’s debt is elevated to 75% of GDP.

Given these challenges, Godongwana faces a difficult task in balancing the country’s limited resources effectively.

While major announcements like wage increases or social grants are only likely to happen in the February budget, the MTBPS could see some minor allocations towards recent weather setbacks or even assistance towards the Post Office. 

“The South African economy is getting ready to enter a cyclical upswing,” Jacobs added.

The country has seen a meaningful moderation in inflation as well as interest rate cuts. As a result, consumers’ disposable incomes are finally starting to look a bit better. 

“As far as the structural growth story is concerned, I think Operation Vulindlela has been very busy with removing some of the blockages in the network industries like we see in electricity generation.”

Operation Vulindlela is a joint initiative of the Presidency and National Treasury to accelerate the implementation of structural reforms and support economic recovery.

It aims to modernise and transform network industries, including electricity, water, transport and digital communications.

Jacobs explained that although there’s been a lot of improvement in the generation coming from renewable energy, the freight story is still lagging.

Although there have been changes to freight, such as the splitting of the infrastructure manager and the operational side – the struggle to increase volumes remains. 

“State capture has left a hole in the balance sheet of between R60 to R70 billion, so Transnet needs new capital to be able to increase fixed investment.”

For this reason, possible regulatory reforms to Public-Private Partnerships (PPP) aimed at fostering public-private partnerships will be an important point to look out for. 

By easing regulations, the government would be able to attract private sector investments in crucial infrastructure areas, which is essential to stimulate economic growth.

Increased private sector involvement through PPPs could also lead to a rise in fixed investment in network industries, and possibly boost GDP growth potential. 

“So we’ll be monitoring to see what’s happening there, what progress is going to be announced there, and that could potentially open the door to an acceleration in fixed investment into 2025 and 2026.”

Jacobs highlighted that fixed investment has decreased this year, which will significantly hinder growth.

Imports have also been lower this year, and that has reduced the import duties paid to the fiscus. 

However, the fiscus will be seeing a boost this year as a result of the new two-pot retirement system.

“Treasury has pencilled in withdrawals of about R20 billion to R40 billion. We have seen numbers of estimates between R50 billion to R80 billion,” she explained.  

If you withdraw from your savings pot, you are taxed at the marginal rate, which is where this money is coming from. 

If there are more withdrawals than expected, that will mean that there will also be additional funds for the treasury.

“So I think all in all, we do expect a shortfall, but it might be small.”

Overall, Jacobs stated that South Africa needs to grow its economy to enable the government to collect more taxes; otherwise, the country will face the same fiscal cliff as it did in February.

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