Sameera Casmod | sameerac@radioislam.co.za
31 October 2024 | 22:10 CAT
2-minute read

Finance Minister Enoch Godongwana on Wednesday delivered the medium-term budget policy statement (MTBPS).

While the speech has been described as a strategy of fiscal tightening combined with targeted support to alleviate social and municipal pressures, ActionSA believes that South Africa’s economy is still unstable. The party has labelled the statement a ‘damp squib’ on the basis that it falls short of the Government of National Unity’s (GNU) promise.

The statement highlighted the fact that South Africa faces a significant budget deficit and high debt levels due to weaker-than-expected tax revenues, largely impacted by low corporate income tax from the mining sector. The deficit is now projected to reach 4.9% of GDP, up from previous estimates, and debt-servicing costs are placing pressure on public finances.

“Revenue is down, expenditure is up, our deficit is up and interest is up, our debt is up. And the worst thing is that our economic growth forecasts are down. And that’s extremely disappointing,” Alan Beesley, an ActionSA member of parliament said earlier today on Radio Islam International.

To address this, spending cuts of R21 billion in the current fiscal year and R133 billion over the next two years were proposed, including a potential reallocation toward prioritised areas like health, education, and police services​.

However, critics argue that real economic reform is necessary in order to address unemployment, inequality and poverty.

Economic growth for South Africa is forecast at 1,8% over the next three to four years, which is low in comparison to the 4,2% growth rate of other Sub-Saharan economies.

While the speech was criticised for being too routine in nature and lacking in concrete substance, Beesley said the party welcomed the commitment to increase funding for the South African Revenue Services (SARS), which is underfunded by 50%. This will also contribute to closing the R800 billion tax gap in South Africa, Beesley noted.

Additionally, Minister Godongwana outlined broad plans to include the private business sector in infrastructure development, emphasising a collaborative approach to enhance public services and accelerate projects. While ActionSA acknowledged the plan as a step in the right direction, it has also criticised the plan for being too vague.

The statement revealed that South Africa’s debt service costs are substantial, with 22 cents of every rand collected in tax revenues allocated to interest payments on national debt.

“Twenty-two cents in every rand that is collected goes to paying for interest. That’s the biggest expense our government has, and we’ve got nothing to show for that interest. Some of that money should be going to our children’s education, to our healthcare, to policing,” Beesley said.

This significant expenditure reflects ongoing fiscal pressures, largely due to increasing debt levels and rising interest rates. South Africa’s gross debt is forecasted to peak at about 77% of GDP in 2027/8, intensifying the impact of these costs on public finances.

The debt burden is crowding out other essential expenditures, like healthcare and education, and limits the government’s flexibility in addressing social and economic priorities. The statement outlined a gradual reduction in debt accumulation as a strategy to improve financial stability and reduce the burden of interest costs, but ActionSA suggests that economic growth will do more to solve the problem.

While there has been growing confidence in the country since the formation of the GNU, Beesley warns against oblivious trust in a coalition that is celebrating a 1,8% economic growth rate.

Listen to the full interview on Sabaahul Muslim with Moulana Sulaimaan Ravat.