Renowned economist Dawie Roodt analysed Finance Minister Enoch Godongwana's 2024 Budget Speech during a recent discussion hosted by the University of Pretoria’s (UP’s) Department of Library Services.

“With the elections around the corner, the 2024 Budget Speech was more of an election budget than telling it like it is,” said Roodt, who is Chief Economist of the Efficient Group. He was speaking at the ‘2024 National Budget Speech Discussion’ event hosted in the Merensky 2 Library Auditorium at UP’s Hatfield Campus on 28 February.

In his Budget Speech on 21 February, Minister Godongwana projected that growth would average 1.6% between 2024 and 2026, supported by the easing of power cuts and inflation rates. But he cautioned that “there are also risks to the domestic outlook. These include persistent constraints in electricity supply, freight rail and ports, and a high sovereign credit risk.”

Roodt responded that South Africa is unlikely to achieve even 1% growth, as the economy is not growing enough to increase employment and the tax base. “For one, we don’t have the electricity we need, and it is not going to be sorted out any time soon,” he said. “How can the economy possibly grow in an environment of general incompetence, corruption, poor macroeconomic policies, and a government that is simply not committed to – or capable of – running a modern state? One of the few areas of excellence is the Reserve Bank and the performance of Reserve Bank Governor Lesetja Kganyago.”

The Minister said weak economic conditions have resulted in a sharp deterioration in tax revenue collection for 2023/24. “At R1.73 trillion, tax revenue for 2023/24 is R56.1 billion lower than estimated in the 2023 budget.” He added that South Africa’s long-term tax policy strategy remains focused on broadening the tax base while improving tax compliance, administrative efficiency and debt collections, and reducing fraudulent refunds and trade valuations.

Roodt said revenue in South Africa is mostly raised through personal income tax, and taxpayers are being lost. “Currently only about 300 000 individuals pay 50% of the country’s personal tax, which accounts for 38% of the total revenue… Nowhere in the world do you have such a narrow tax base. In addition, company taxes are doing worse than expected. Approximately 770 companies in South Africa are paying two-thirds of all company tax. The tax base has been exhausted, and it is not increasing. To the contrary, if you look at the JSE, you see companies disinvesting and delisting.”

At the same time, Roodt said, social expenses such as grants are soaring. “Currently, 28 million people out of a population of approximately 62 million are receiving grants, including 10 million receiving the COVID grant, plus there are two million civil servants. Hence 30 million people are being paid directly by the state... A healthy economy and good social security system is one with fewer people, not more. I am not suggesting we don’t pay the grants, but we have to get the economy to grow, and we have to have more people employed.”

As the state tries to increase tax revenue, one proposed measure is a global minimum corporate tax to limit the negative effects of tax competition. Multinational corporations with annual revenue exceeding €750 million (R15,3 billion) would be subject to an effective tax rate of at least 15%, regardless of where their profits are generated.

Roodt responded that over the past few decades countries such as Ireland started reducing their corporate taxes to become attractive investment destinations.

The Minister emphasised that “our pie is not growing fast enough, and this limits our ability to generate sufficient revenues to distribute among our priority areas”, which include education and health.

Roodt outlined that education is the highest expenditure in the budget, with interest on national loans as the second highest, “… and it is far too high. Interest on state debt keeps going up and up and is standing at about 75% of GDP, excluding the local authorities and state-owned enterprises, which, if added, would push the state debt-to-GDP ratio closer to 90%.”

On education, the Minister said the sector has been allocated an additional R25.7 billion for carry-through costs of wage increases over the medium term. The early childhood development grant has been allocated R1.6 billion, rising to R2 billion over the medium term.

Roodt responded that despite the huge spend on education, the percentage of illiterate children and young people in South Africa is frightening. “The basic education system is not even achieving the basics of producing children who know how to read, write, communicate, and who are computer-literate,” Roodt said.

About the controversial National Health Insurance (NHI) Bill, Roodt said: “The NHI will not happen for three reasons: firstly, there is no money – it would cost hundreds of billions of rands; secondly, it is unconstitutional, and the courts will stop it; and thirdly, an incompetent government is sometimes a good thing as it cannot implement a bad idea.”

In terms of job creation, the Minister said that provision for key initiatives aimed at job creation include R61.4 billion allocated for employment programmes over the medium term. Roodt responded that “there is growth is in the service industry, including services that are technologically driven... This sector is our saving grace...”

Roodt said that South Africa is in a precarious situation politically and economically, that the past three years have shown particularly poor performance, and that the country needs to be careful about “who we play with”, such as Russia, as these relationships impact the economy.

“I am concerned that we are heading for a financial crisis, as a lot of foreigners are holding our debt. If the Americans decided to sanction South Africa and were then not allowed to buy bonds, inflation will go up, the rand will come under tremendous pressure, and this economy will take a nosedive.”

The Minister was far more upbeat, saying, “We have come a long way in the last 30 years. The 30 years ahead of us, and whatever challenges and opportunities they may bring, are something we should look forward to.”

“The reality,” Roodt responded, “is that we are supposed to be getting wealthier in South Africa, but we are worse off than 10 years ago. Ten years ago our per capita GDP was the same as Mauritius, but 10 years later theirs is double ours. Imagine your salary being doubled tomorrow, that’s the reality.”

During the question session Roodt was asked, “Should we leave South Africa?”

“No,” he replied. “This is a wonderful country, and while it is very unfortunate that everyone cannot benefit from what South Africa offers because so many people are unemployed, if you have a reasonable job you can have the most unbelievable lifestyle here.

“What has to happen is that we have to restore confidence in South Africa’s economic future. We have to clean up the place and get the right policies, commitment and skilled people in place to run the country, which includes each one of us.”