Budget Speech 2024
Yesterday, the finance minister Enoch Godongwana delivered the 2024 National Budget Speech. The budget plan for the medium term looks encouraging, but analysts believe that we have reached a tipping point. We have summarised some prominent points of the speech that will provide small wins and significant losses. It touched on the fiscal outlook, cryptocurrency, increased sin tax proposals and the extension of the social relief grant, among others.
Looking at the government fiscus outlook, the budget deficit was worse than estimated, which was 4.9% of GDP (estimated at 4%). The minister projected that the budget deficit should narrow to 3.3 per cent by the end of the 2024 medium-term expenditure framework (MTEF) period. Debt will now peak at 75.3% of GDP in 2025/26. This, in turn, increases the debt-service costs to R 356 billion, equivalent to more than 20% of the revenue going to the interest and other expenses associated with borrowing money.
“To put this into perspective, spending on debt-service costs is greater than the respective budgets for social protection, health, or peace and security,” said the Finance Minister. “We estimate real GDP growth of 0.6% in 2023. This is down from 0.8% growth estimated during the 2023 MTBPS.”
Sin taxes continue to rise as the minister announced that excise duties on alcohol will increase between 6.7 and 7.2 per cent, while duties on tobacco products will increase between 4.7 and 8.2 per cent. Additionally, Godongwana noted an increase in the excise duty on electronic nicotine and non-nicotine delivery systems, known as vapes, to R3.04 per millilitre.
Buried deep in the Budget Speech was a bit on crypto assets. It looks like the government is taking steps to research this market to regulate and even move digitally as they look into tokenisation. This is encouraging as they are looking ahead as the FSCA declared crypto assets to be a financial product, thereby requiring providers of financial services relating to crypto assets to be licensed by the FSCA in November 2023. Is this the influence of BRICS?
The budget review states that in 2024, the group will publish additions to include “stablecoins” as a particular type of crypto asset. It will conduct analytical work to understand stablecoins’ applicable use cases and recommend an appropriate policy and regulatory response. The FIC and FSCA will jointly increase enforcement of unlicensed service providers of crypto assets. The FIC Act requires accountable institutions to report all cash transactions exceeding R49 999 to the FIC.
Tokenisation represents assets such as securities and payment instruments on distributed ledger technology, commonly known as blockchain. By June 2024, a paper providing an overview of tokenisation will be published. By December 2024, a discussion paper outlining the policy and regulatory implications of tokenisation and blockchain-based financial market infrastructure will be issued. (Budget Review, 2024).
The minister added that as of 1 March 2026, producers of electric vehicles in South Africa can claim 150 per cent of qualifying investment spending as an incentive to aid the transition to new energy vehicles. This is encouraging for international EV manufacturers as we have cheap labour, but we may not have the electricity to keep them operating.
On 1 September 2024, the two-pot retirement system will be implemented. The two-pot retirement system will allow retirement fund members to withdraw their retirement funds while still active, so members need not resign to access part of their retirement benefits. This will provide some relief to South Africans with high debt in the future. Speak to a financial advisor to see how to access these funds and set up your retirement planning.
The minister didn’t leave without some good news, as they have added R251.3 billion to the MTEF to ensure that the salaries of teachers, doctors, nurses, police and many other public servants are funded and to maintain strong levels of social protection through 2026/27. This is important for municipal stability as they struggle with the dilapidated infrastructure.
More importantly, he mentioned that there will be no inflation adjustments to personal income tax tables and medical tax credits. They, however, plan to collect an additional R15 billion in 2024/25 in taxes through bracket creep. As salaries increase to keep up with the rising cost of living, workers get pushed into higher tax brackets and end up handing more to the government.
Our poor service delivery, rolling blackouts, and failing state-owned enterprises like Transnet and Eskom mean our budget will always be on the back foot unless we fix the fundamental issues. With elections coming, it could be interesting if there was a change in leadership in how our fiscal policy will look. I hope this year will provide an optimistic future for our country.
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Disclaimer:
This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information only and contains no personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability regarding the accuracy or completeness of the information presented. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services.
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