Skip to content
Home » Boring Budget blues

Boring Budget blues

By Eamonn Ryan

Finance Minister Enoch Godongwana was under pressure to curtail the government’s growing budget deficit while also maintaining spending and keeping taxes low.

Finance Minister Enoch Godongwana.
Finance Minister Enoch Godongwana. Image Credit: National Treasury

This he achieved by plundering the country’s reserves in what was widely described as an unsustainable strategy. Otherwise, the budget was noted for nothing much other than changes in arcane administrative rules that nobody other than a CA would understand.

Nonetheless, the budget highlights a continuation of the government’s fiscal strategy aimed at achieving stability and sustainability in public finances. For both local and foreign investors, these measures could have varying implications for investment decisions in the South African economy.

Firstly, the commitment to achieving a primary budget surplus and stabilising debt by 2025/26 suggests a positive trajectory for fiscal discipline. This can instill confidence among investors, both local and foreign, regarding the government’s ability to manage its finances responsibly, which is crucial for long-term economic stability.

The projected narrowing of the consolidated budget deficit from 4.9% of GDP (from 4% in 2023/24) to 3.3% by 2026/27 further demonstrates a concerted effort towards fiscal consolidation. This may be viewed favourably by investors as it reduces the risk of fiscal imbalances that could lead to macroeconomic instability.

However, the proposed tax increases, particularly on excise duties for alcohol and tobacco products, might have mixed implications. While they generate additional revenue for the government and help address immediate fiscal pressures, they could also potentially dampen consumer spending and business profitability in those sectors. This could impact investment decisions, especially for companies operating in these industries.

On the other hand, the implementation of a global minimum corporate tax rate and incentives for producers of electric vehicles could attract foreign investment. The adoption of international tax standards enhances the country’s credibility and attractiveness for multinational corporations, as it aligns with global norms and reduces the risk of tax-related disputes. Additionally, the incentives for electric vehicle producers signal the government’s commitment to fostering green industries and innovation, which could incentivise investment in renewable energy and sustainable technologies.

Moreover, the allocation of significant funds towards education, healthcare and social protection programmes underscores the government’s focus on human capital development and social welfare. This can be perceived positively by investors, as a skilled and healthy workforce is essential for productivity and economic growth.

Overall, while the budget reflects efforts towards fiscal sustainability and social development, the impact on investment will depend on various factors such as sector-specific policies, regulatory environment, and global economic conditions. Ensuring effective implementation of these measures and maintaining policy consistency will be crucial in attracting and retaining investment in the South African economy.