Earlier this afternoon, the Minister of Finance, Enoch Godongwana, tabled the much anticipated Medium-Term Budget Policy Statement (‘the MTBPS’) in Cape Town.
Characterised as the ‘mini-budget’, the MTBPS plays an indispensable role in the budgetary process by establishing the policy agenda for next year’s fiscal framework, that is the wide budgetary aggregates of total expenditure, revenue, and borrowing for a particular year.
Re-emphasising the need for inclusive economic growth, the Minister outlined government’s four pillar-strategy to advance the economy and preserve public finances, namely:
- Maintain macroeconomic stability to foster an environment that encourages businesses and households to save, spend, and invest;
- Implement structural reforms to enhance productivity, increase international competitiveness, and accelerate job creation;
- Support growth-enhancing infrastructure projects to stimulate economic activity and augment limited public sector capability by mobilising private sector participation, financing, and technical expertise; and
- Build an ethical and developmental state through adjustments in mid-term expenditure and interventions to preserve the integrity of critical institutions.
Against the backdrop of these objectives, the Minister provided the following fiscal takeaways:
The National Treasury has revised its economic growth outlook over the next three years. Estimating lower-than-expected GDP growth of 1.1% in 2024, down from an earlier estimate of 1.3%, the Minister forecasted a conservative average growth of 1.8% over the next three years. Growth is expected to be 1.7% in 2025, remain the same in 2026, and reach 1.9% in 2027.
Government debt is likely to exceed R6.05 trillion in 2025/26, with debt-service costs reaching R388.9 billion in the current financial year. For every one Rand of revenue government collects, 22 cents is directed towards debt servicing. Stressing the need to improve the country’s debt management strategy, the Minister indicated that the primary budget deficit will decline from 4.7% of GDP in 2024/25 over the medium term to 3.4% in 2027/28.
Despite a tax boost from two-pot withdrawals, tax revenue for 2024/25 is estimated to be R22.3 billion lower than originally anticipated in February. Accordingly, the primary budget revenue estimate has been lowered by R31.2 billion over the next two years. Absent faster economic growth, and against the backdrop of extensive external pressures, increasing tax revenue is expected to remain a challenge.
Despite weaker revenue, expenditure will rise from February’s estimate to accommodate, among other things, rollovers from the previous financial year to the tune of R2.1 billion, unavoidable expenditure of R2.1 billion (primarily for disaster relief), and R2.7 billion largely allocated for the Covid-19 social relief of distress grant.
Consolidated expenditure is likely to increase from R2.4 trillion in 2024/25 to R2.8 trillion in 2027/28 over the medium term.
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