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The ASRI Report

Sameera Casmod |
23 February 2024 | 12:51 SAST
2 minute read

One of the main focal points in Finance Minister Enoch Godongwana’s 2024 budget speech last week was fiscal consolidation in economically trying times.

Fiscal consolidation aims to stabilise the government’ s debt ratio relative to the size of the economy, known as the debt-to-GDP ratio, Rashaad Amra, a researcher at the Auwal Socioeconomic Research Institute (ASRI) explains.

To improve the overall state of the South African economy in the wake of the 2008 financial crisis, South Africa’s spending increased in relation to its revenue and size of its economy.

Despite these efforts, the economy did not grow as well as the country had hoped, and then COVID-19 further deepened South Africa’s economic challenges.

“Now, we’re sitting with a huge debt stock, and we’re contributing every 20 cents we collect, that SARS collects, is going towards debt service costs. Now, if that trajectory continues… there [will] be less resources available to pay nurses, to pay doctors, to borrow, to pay for schools, and everything else the state does,” Amra explains.

Despite the government’s best efforts to improve the debt-to-GDP ratio, numerous factors such as wage negotiations and poor revenue performance have slowed progress.

Amra expresses confidence in South Africa’s ability to achieve the fiscal expansion efforts as outlined in this year’s budget speech.

Regarding expenditure adjustments, Amra discusses the implications of adding R57 billion back into the budget to accommodate wage increases for public servants. While this move addresses immediate concerns, he cautioned against its long-term effects on service delivery, particularly in the healthcare sector.

On tax proposals, Amra highlights the decision not to increase the fuel levy, which is welcomed by consumers.

“The decision not to increase the fuel levy, which really takes a significant portion of your pump price, is welcomed… [and] is a pretty good thing for now… The other side of that  is that the road accident fund has very significant liabilities,” Amra said.

Amra raises concerns about the lack of inflation adjustments for personal income tax brackets, which effectively increases taxes for individuals despite receiving salary increases.

The use of the gold and foreign exchange contingency reserve to offset borrowing requirements is seen as a prudent move to avoid high-interest debt. However, Amra emphasises the importance of using this resource wisely to prevent depletion.

Asked whether the budget was influenced by upcoming elections, Amra argued against labelling certain measures as populist, such as the extension of the COVID-SRD grant.

“I think the government and the Treasury have stuck to its conservation efforts,” Amra said, commending the government for its prudent approach to fiscal management.

Listen to the ASRI Report on Sabaahul Muslim with Moulana Sulaimaan Ravat.



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