Finance minister Enoch Godongwana unveils the 2025/26 budget this morning under tremendous pressure to find money for competing demands.
The economy is not growing, tax revenue has been revised downwards and a commitment to fiscal consolidation means the government must stick to reducing debt, expected to peak at 75.5% of GDP, or R5.9-trillion, this financial year.
The first headache is the public sector wage bill. Some unions have accepted a 5.5% offer over the next three years, while others are polling their members for consensus. The Treasury had already set aside R57.6bn to cover the current three-year wage agreement running from 2023 to 2026, but will have to dig even deeper to honour the latest agreement should all the unions vote in the affirmative.
In 2023 Godongwana adopted a tough-love policy for state-owned enterprises, vowing the fiscus would not longer bail out their mismanagement. Since then, he’s had to devise a R254bn debt relief plan for Eskom. A think-tank aligned to Wits University also reckons the power utility needs an additional R30bn this financial year to make up for the shortfall in revenue brought about by regulator Nersa granting it lower tariffs than it applied for, and municipalities owing it R90bn.
As expected, a broad range of stakeholders from economists to labour, civil society organisations and even ANC partners in the government of national unity are seething
In December 2023, hardly two weeks after Godongwana reiterated the tough-love stance, Treasury announced a R47bn government guarantee for Transnet to support the rail and ports company’s recovery and financial performance. It has a R137bn debt pile and pays more than R1bn a month in interest. It will be hard for government not to announce some form of financial support for an entity so crucial to economic growth.
The social relief of distress (SRD) grant has become a de-facto basic income grant and it will take billions of rands to extend it for another year. We also expect an exponential increase in grant beneficiaries since a court ruled that means test applied was unconstitutional and exclusionary.
Then add more money for defence to bolster our mission in the DRC, and presumably support for HIV/Aids programmes under threat after the Trump administration announced a moratorium on foreign aid.
It’s no surprise Godongwana and co are seriously thinking of hiking taxes to fund all these competing needs. From what we understand so far, the Treasury has stood firm on going ahead with a VAT increase.
As expected, a broad range of stakeholders from economists to labour, civil society organisations and even ANC partners in the government of national unity are seething. VAT is essentially seen as a tax on the poor. There will be questions asked as to why corporate income and personal income taxes were not adjusted upwards. Some will even question why some form of a wealth tax was not introduced.
Be that as it may, public finances are tight and short of borrowing more or bursting the expenditure ceiling, the Treasury has no choice but to consider all policy tools at its disposal to boost revenue.
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