Budget 2024: Fire-fighting by a desperate government in the face of an election

Cuts everywhere but not to failed programmes, failed ministries or electioneering

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22/02/2024 08:07:01

 Budget 2024: Fire-fighting by a desperate government in the face of an election

The cabinet’s decision to raid R150 billion of surplus “paper profits” within the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) may provide some breathing space, but this is not a sustainable strategy but rather a clear sign of a desperate finance minister looking into every corner for funds to stop the bleeding.

Of concern to OUTA, as has been the case for years now, is that once again we see a Budget that is trying to tackle balancing the books of a government that has no clue about building the economy and growing SA Inc, and is left with nothing else to do but stare into the headlights of oncoming challenges that it is now finding extremely difficult to dodge.

We have a government that is not serious about growing the economy and, when it does need to cut, it does not do so where cuts are most needed. The bloated state and its numerous ministries awash with wasteful and unproductive spending is left to squander more money, while more people (another 10 000 police recruits) are thrown into trying to address rampant crime and corruption, when the real problem is a lack of leadership and systemic approaches to tackling the decline in safety and security.

After years of telling us the size of government needs to be reduced, not a single ministry or deputy minister position is cut. Not a single unproductive department is amalgamated into another, and there is no indication of slashing of failed programmes. We are still waiting to see significant results from the National Treasury’s spending reviews of recent years translated into the Budget. These are the signs of a government that talks a lot but unable to implement its decisions.

The GFECRA Defrayal Adjustment Bill shows that the R150 billion (of the R500 billion in the fund) will be drawn down over three years. The bill does not limit the drawdowns to those three years, but permits drawdowns “in any financial year following the 2024/25 financial year”. This money is not being used to pay for infrastructure or pay off debt, but rather to reduce the amount of borrowing needed. The bill gives broad terms for the use of the funds for the contingency reserve, through the National Treasury vote. This is not ideal.

We are pleased there are no new massive state-owned entity bailouts, as we have yet to see the impacts of any turn-around strategies and past commitments to Eskom, Transnet, SAA, Denel and others.

Treasury has managed to hold the expenditure ceiling (R1.729 trillion) under that set in last year’s budget (R1.750tn). This could have been improved had government not capitulated on plans to curb salary increases. Clearly the threats of public service labour instability was not a space they wanted to be in going into an election year.

“The cost of holding onto power is evident in the Budget,” says Wayne Duvenage, OUTA’s CEO.

OUTA has taken note of the Second Adjustments Appropriation (2023/24 Financial Year) Bill, which appears to have done a last-minute shuffle of the remains of this year’s money. The biggest cut listed in the bill is R400 million chopped from Cooperative Governance’s Community Work Programme, and the biggest beneficiary is R200 million added to the Represented Political Parties’ Fund (RPPF) through the Home Affairs vote.

Cutting work opportunity programmes and handing half of that money to political parties as a bailout shows how little the ruling party (who stands to gain the lion’s share of this windfall) cares about the state of the fiscus. It is worth remembering that a year ago Budget 2023 had R350.34 million allocated for the RPPF, which received a boost of an additional R300m in the Medium-Term Budget Policy Statement in October. Sadly, it has now received another R200m, taking this total to R850.345m for 2023/24, which is about two-and-a-half times the original allocation and five times the allocation for 2021/22.

This decision is clearly driven by a financially desperate ruling party that is looking for every resource it can get to fight a tough election battle in May and giving it a significant advantage against newcomer parties and individual candidates.

We sincerely hope that National Treasury does not transfer funds to any political party that is not tax compliant.

For individual taxpayers, there are no tax increases, but they will effectively take home less as tax brackets will not be adjusted for inflation. Those taxpayers who get pay increases may find themselves in higher tax brackets and paying more tax, a tactic that will help Treasury squeeze an extra R15bn in taxes from an overstretched workforce. Surprisingly, but fortunately, the general fuel levy and Road Accident Fund levy are not increased for a third year in a row. 

There are 4% more individual taxpayers who earn enough to pay tax compared to last year, but still not quite as many as there were the year before.

OUTA welcomes the R57.6bn extra for teachers, nurses and doctors (with R25.7bn of this specified for teachers and R11.6bn for Health) but would like to see clarity on the full spending.

The miniscule allocation of R2bn for NHI is indicative of no real plans to force this poorly planned policy into place. We regard this as a weak attempt to keep the topic alive for electioneering purposes.

The Criminal Assets Recovery Account (CARA), which contains seizures from the proceeds of crime (but excludes the money returned to victims), has improved in recent years due to seizures from companies implicated in state capture (for example, see here and here). OUTA believes this money should go to fund the National Prosecuting Authority, Special Investigating Unit and Hawks in their pursuit of state capture kingpins. Instead, R2.9 billion is going to combat illegal mining “and other priority crimes” with 60% allocated for police deployments including vehicles.

When it comes to improved public transport by rail, we note the welcome intention for an improvement Metrorail from 15.6 million passengers in 2022/23 to 48.6 million in 2026/27. This however comes off a low base after government allowed these services to be trashed and pillaged during the Covid pandemic years. We are spending far too much money on repairs and maintenance of infrastructure that should never have been allowed to fall into disrepair in the first place. 

We welcome the incentives for the auto industry to transition to electric vehicles (only from 2026), but there’s no mention of cutting the high import tax on electric vehicles or support for charging stations. The increase in limit for renewable energy projects that qualify for the carbon offset regime from 15MW to 30MW is encouraging, but also another reminder that government operates in silos that are often in conflict with each other. Without a credible Integrated Energy Plan and the poorly drafted Integrated Resource Plan, the energy sector and our energy security continue to limp along in a chaotic manner. Mineral Resources and Energy has both its allocation for mining, minerals and energy policy development and its cost of consultants more than doubled year-on-year, so perhaps that will help.

The National Student Financial Aid Scheme is another area of failed promises.

In January, Higher Education Minister Blade Nzimande promised that an extra R3.8bn would be found in 2024/25 (taking R1.5bn from NSFAS and R2.3bn from the SETAs) to start funding the “missing middle” students. But this is not in the Second Adjustments Appropriation Bill for 2023/24, so such a large move between the SETAs and NSFAS would not be legal. And the NSFAS funding for the next three years is reduced from previously projected. This makes the minister’s statement look like meaningless electioneering or promises made to draw attention away from the shocking mess in NSFAS.

Last week NSFAS said that just 139 students had been approved for loans (this is the missing middle group).

The Budget Review says this: “Student enrolment growth may be affected by reductions in subsidies to universities and the National Student Financial Aid Scheme over the MTEF period.”

The Higher Education vote lists NSFAS indicators as increasing from funding 450 000 students in 2024/25 to 559 884 in 2025/26, a 24% increase.

But the vote also says that transfers to NSFAS are being reduced by R16bn over the next three years. Despite the cuts, it says it aims to provide 2.9m students with loans and bursaries over the three years, but that the reductions will affect the number of bursaries it can award.

Water and Sanitation gets a 13% increase in budget year-on-year, an indication of a department that is starting to address the water crisis. We are pleased to see that the Green Drop assessments are built into the indicators for 2024/25 and the Blue Drop for 2025/26. Water and Sanitation gets R161bn (17%) of the total R944bn for infrastructure expenditure over three years. The department’s infrastructure spend for 2024/25 increases 22% on last year. OUTA’s WaterCAN initiative hopes this is the start of a turnaround in that sector, and that government gives this department all the support it needs.

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In 2023, we were in court challenging the Karpowership generation licences and SANRAL’s secrecy over toll profits. These cases continue.
We have also challenged electricity prices and we defend South Africa’s water resources.

We want to see South Africa’s tax revenue used for the benefit of all, not a greedy few. 

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