Minister Enoch Godongwana: 2024 Budget Speech

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21 FEBRUARY 2024

Minister Enoch Godongwana: 2024 Budget Speech

Honourable Speaker, Nosiviwe Mapisa-Nqakula

His Excellency, President Cyril Ramaphosa

His Excellency, the Deputy President Paul Mashatile

Cabinet Colleagues

Members of the Executive Committees for Finance

Honourable Members

The Governor of the South African Reserve Bank

The Commissioner of the South African Revenue Service Fellow South Africans

Introduction

Madam Speaker, according to two prominent economists, Alberto Alesina and Dani Rodrik, “A crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it”. The point, Madam Speaker, is that the size and quality of the national pie is what informs, and ultimately determines, the realisation of our political imperative of redistribution.

Our mission over the past 30 years has been to restore both social and economic justice to our nation, and to decisively address the inequality that was the hallmark of systemic discrimination and dispossession.

The budgets we have tabled since 1994, have been about securing the goal of growing the economy, so that we can do more to address the inequalities and deprivation that still scar our society and undermine the promise of democracy.

So, it is with a great sense of privilege and purpose that I stand before you to present this last budget of the sixth democratic administration.

Madam Speaker, I therefore table the following documents before this House:

  • The 2024 Division of Revenue Bill;
  • The 2024 Appropriation Bill;
  • The Estimates of National Expenditure;
  • The 2024 Budget Review;
  • The 2024 Fiscal Framework;
  • The Second Adjustments Appropriation Bill;
  • The Budget Speech; and
  • The Gold and Foreign Exchange Contingency Reserve Account Adjustment Bill

For this reason, Honourable Members, we are strengthening our strategy and sticking to our fiscal goals.

A net reduction of R80.6 billion in non-interest expenditure is being implemented over the medium-term. At the same time, revenue has been revised up by R45.6 billion over the medium-term, relative to 2023 MTBPS. And, we have taken the decision to introduce a reform of the Gold and Foreign Exchange Contingency Reserve Account, also known as GFECRA.

Taken together, even with the spending increases I will announce later, the national government gross borrowing requirement will decline, from R457.7 billion in 2024/25 to R428.5 billion in 2026/27. The deficit will begin to improve from 2024/25, to an estimated 4.5 per cent of GDP, reaching 3.3 per cent by 2026/27.

Debt will now peak at 75.3 per cent of GDP in 2025/26.

All of this puts us in a position to continue to protect core services. It allows 60 per cent of non-interest spending to be directed to the social wage. It also allows us to preserve capital spending.

Compared to the MTBPS, we are adding R57.6 billion to pay for the salaries of teachers, nurses and doctors, among many other critical services.

Madam Speaker, as I mentioned earlier, in this budget we are announcing a reform of GFECRA. GFECRA is an account held at the Reserve Bank that captures gains and losses on the country’s foreign currency reserve transactions.

Simply put: if the Rand strengthens against the US Dollar and other reserve currencies, the account balance declines, and vice versa. The account balance has grown to over R500 billion over the years because the Rand has depreciated over time.

A new settlement arrangement is being introduced that will reduce government borrowing and improve the Reserve Bank’s equity position.

Ultimately, we are bringing South Africa closer to our peers and ensuring alignment to international best practice. We will draw down R150 billion of the GFECRA balance once we have ensured that sufficient buffers are available to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised.

Supporting Economic Growth

We have embarked on a broad structural reform agenda that aims to address the challenges that have held back our growth.

This agenda has included areas like electricity, logistics, water, telecommunications and visa reforms. The Budget Review details the good progress that has been made in these areas over the past few years.

But, obstacles remain and let me focus on the two largest of these.

Electricity

Load shedding is a problem that confronts all South Africans. It disrupts production, operations and livelihoods.

Reforming the sector will result in long term energy security. We took the necessary decisions in the past five years and these are bearing fruit.

To promote further investments in renewable energy, this budget proposes an increase in the limit for renewable energy projects that can qualify for the carbon offsets regime, from 15 megawatts to 30 megawatts.

Eskom continues to be a key role player in the electricity sector. And the debt relief plan allows the entity to focus on its core business.

We will release the report on the independent review of Eskom’s coal-fired power stations in the coming week. The review was done to inform part of the conditions attached to the debt relief plan.

The recommendations will feed into Eskom’s corporate plans to bolster accountability and oversight.

It is through the combination of private investment in new energy projects, rooftop solar installations and improvements in Eskom’s generation fleet that load shedding will reduce, and reliability and security of supply improve.

In addition, to support these efforts, we are introducing a new R2 billion conditional grant over the medium term to fund the rollout of smart prepaid meters.

This will begin with municipalities that have been approved for debt relief.

Logistics

To address South Africa’s increasingly unreliable logistics system, Cabinet approved the Freight Logistics Roadmap in December 2023.

The roadmap outlines immediate steps needed to improve port equipment, locomotive availability and network security.

It also sets out a clear path for enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector.

In this regard, third-party access to the freight rail network will be introduced by May 2024.

In ports, a private partner has been secured to upgrade Pier 2 of the Durban Container Terminal. This should increase private investment in equipment, enhance technological capability and improve operational efficiency.

Government has provided Transnet with a R47 billion guarantee facility to support the entity’s recovery plan and meet its immediate debt obligations.

Like Eskom, the guarantee comes with conditions. These conditions require Transnet to focus on its core activities, and for the entity to introduce private sector partnerships. This will improve Transnet’s sustainability and support the implementation of the roadmap.

Supporting Public Infrastructure Investment

Madam Speaker, I am proud to announce that as part of this budget, we are introducing fundamental and far-reaching reforms to infrastructure financing and delivery.

The reforms are to optimise the infrastructure value chain to be effective and efficient.

In this way, we will strengthen the public investment management and the associated value chain. We will also attract private sector participation.

In this regard:

  • We gazetted the amendments to the PPP regulatory framework for public comments earlier this week. The amendments seek to reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, formulate clear rules for managing unsolicited bids, and strengthen the governance of fiscal risk.
  • We are reviewing institutional arrangements and governance for catalytic infrastructure. The intention is to create clearer mechanisms for accountability, cooperation and coordination.
  • We are also consolidating similar functions to reduce duplication and inefficiencies. The intention is to fast-track delivery, particularly of blended finance arrangements.
  • We are introducing several new financing instruments, such as infrastructure bonds and concessional loans. As part of this, a flow-through tax vehicle for specific infrastructure projects, similar to trusts and other investment vehicles, is being considered.
  • A new funding window for proposals under the new dispensation of financing instruments will be opened to public institutions shortly.

Through these reforms, greater efficiency gains and infrastructure delivery will be fast tracked.

This will benefit network sectors, social infrastructure, PPPs and blended finance projects.

between preserving contributions to safeguard a better retirement for members, while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress.

Over the next few years, we are also implementing a global minimum corporate tax to limit the negative effects of tax competition.

Multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15 per cent, regardless of where their profits are generated.

The proposed reform is expected to yield an additional R8 billion in corporate tax revenue in 2026/27.

I encourage interested parties to provide comments on the draft Global Minimum Tax Bill published today.

Our long-term tax policy strategy remains focused on broadening the tax base while improving tax compliance and administrative efficiency.

Visible progress has been made in rebuilding and modernising SARS.

The tax authority has expanded the tax register, improved debt collections and reduced fraudulent refunds and trade valuations. This has led to improvements in revenue collection.

To address the high levels of illicit tobacco, SARS is deploying CCTV and related technologies at licensed tobacco manufacturers. Investigations and prosecutions have resulted in R10 billion in additional assessments from the key players in the illicit gold and tobacco industry, of which over R4 billion from key players in the illicit gold and tobacco industry.

These and other efforts have assisted with the improvement in revenue.

Our bigger challenge, as I have stated earlier, is that our pie is not growing fast enough and this limits our ability to generate sufficient revenues to distribute among our priority areas.

non-interest expenditures, is allocated to provinces and municipalities over the next three years.

R531.7 billion is allocated to local governments, and R2.3 trillion for provinces.

An additional R105.5 billion rand is allocated to provinces over the next three years to cover the cost of implementing the 2023 public-service wage agreement, mainly in the education and health sectors.

The provision of these additional funds will cushion the wage bill pressures faced by these critical, personnel intensive departments, while freeing up of resources for capital investment and goods and services.

Moreover, reductions that were previously made on some grants have been reversed.

Restoring the baselines of these grants will help maintain important services for the most vulnerable and provide for critical capital investments.

However, to ensure public finances remain sustainable, reductions are made to several other grant baselines, although many continue to grow over the next three years despite the reductions.

Regarding municipalities, an additional R1.4 billion is provided for the municipal disaster recovery grant to fund the repair and reconstruction of infrastructure damaged by the tragic floods of 2023.

Madam Speaker, municipalities are the coalface of service delivery. Sadly, an unacceptable number of them are experiencing weaknesses in governance, financial management, and service delivery.

To address these challenges, and to transform municipalities into engines of growth, we have adopted a multi-pronged approach.

It focusses on tightening budget processes, ramping up oversight, increasing the skills and capacity of municipal employees, and driving investment in maintaining and building infrastructure.

Reduce the growth of government debt and the cost of debt; andAllocate more funds for core services, provide for the social wage and preserve infrastructure budgets.I am grateful to the President and Deputy President for their continued support and leadership.

Thank you to the Deputy Minister of Finance, Dr David Masondo, and the excellentNational Treasury team led by the Director-General, Dr Duncan Pieterse.

Thank you to the Commissioner of the South African Revenue Service and the Governor of the South African Reserve Bank.Thank you to my colleagues in the Ministers’ Committee on the Budget and in the BudgetCouncil who share the heavy load of the tough decisions that we make to maintain sustainable public finances.

To Parliamentary Committees of Finance, Appropriations and Public Accounts, I express my sincere appreciation.To my wife and family, your love, support and forbearance are a daily inspiration.

Lastly, thank you to each and every South African.

Thank You

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