Feb 27

From The Chairman’s Desk Budget 2024 – In Need Of A Recipe To Grow The Cake

Our national cake is not growing fast enough. This was the top and bottom line of Minister Enoch Godongwana’s 2024 budget speech. Yet, remarkably, there was precious little yeast or raising flower in the budget to grow the cake. Rather, the national chef borrowed a little here and a lot more there and then set about slicing up the cake among an expectant and hungry electorate. Constrained as it was, this was fundamentally an election budget, generous with handouts and decorated with promises with the candles of a brighter and better future. Eskom notwithstanding.

Budgeting in any country is a tough task, but particularly so in South Africa given our
history, our demography, our uneven economy and our track record of economic own goals. Moreover, it is tough in the global economic kitchen, with pallid economic growth rates, doggedly persistent inflation and burgeoning geo-strategic threats. So, one has some sympathy for the Minister of Finance and
the limited recipe book available to him, but regrettably, he again missed the opportunity to serve up a tastier, more appetising and sustainable menu of renewal and growth.

On the plus side, and contrary to the more alarmist predictions, the Minister announced no new personal income tax, but did foreground the introduction of the OECD driven universal minimum corporate tax rate of 15%. Despite no new income tax rates, effectively we will all be paying a little more due to the absence of bracket adjustments. This is not a stealth tax per se, but it will be felt by all who are lucky enough to be employed.

Lifting VAT was never a starter so close to an election (now announced to be held on Wednesday 29 May), but of course, we saw the customary increases in so-called sin taxes on alcohol and tobacco products.

The most notable announcement was Treasury’s tapping into the SA Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to the tune of R150 billion in order to help fill the widening budget deficit. It is not uncommon for Treasuries internationally to tap into the credit balance of their respective currency reserves, but this step more

than any other highlights the fiscal and budgetary challenges faced by Treasury. While the availability of such a healthy GFECRA is testament to the remarkable discipline and sobriety of the SA Reserve Bank, (and just one more reason for it to retain and protect its independence), the sobering fact is that once spent, the GFECRA has gone. Notably, some 20% of the national budget is now spent on debt servicing – a situation that cannot and must not be allowed to continue. In this regard, the Minister was confident that the budget deficit would peak in 2026 and decline thereafter. The proof of this particular pudding will be in the eating.

As expected, social welfare spending will increase for the year 2024/2025 and yet the budget promised precious little to those who would simply wish to work for a living, rather than be dependent on social grants and handouts.

We have uploaded the national budget speech and summary graphic to the Warwick Wealth website for your reading pleasure and I know that your Wealth Specialist and our professional network will be delighted to talk to you more about what the 2024 budget means for you.