South Africa’s National Budget Speech 2024

On Wednesday 21 February 2024, the Minister of Finance, Mr Enoch Godongwana presented his pre-election National Budget Speech to the Members of the National Assembly. The Minister’s speech comes at a time of a strained fiscal landscape driven by dulled economic growth, high unemployment, mounting pressures on the public sector expenditure and escalating debt service costs.  

The National Budget Review notes that South Africa’s limited public resources have been under significant pressure for over a decade. Economic growth has averaged 0.8% since 2012, far below the level needed to address the high levels of unemployment and poverty. Over the same period, government borrowing has increased significantly. As a consequence, interest on government debt is currently stifling the economy. 

It is recognised that to encourage economic growth and create jobs, South Africa needs massive investment, the bulk of which is proposed to come from the private sector. This Budget prioritises macroeconomic stability, structural reforms to reduce binding constraints to economic growth and improved state capacity. It is noted that broad reforms are under way in energy, rail, ports and the water sector. 

Tax rates remain unchanged

The corporate income tax rate remains unchanged at 27%. Natural persons will bear the burden of the fiscal consolidation proposed in the Budget as no inflationary adjustments to the personal income tax tables or medical tax credits have been proposed. The general fuel levy and Road Accident Fund levy remain unchanged. The VAT rate remains unchanged at 15%.

Tax incentives 

To encourage the production of electric vehicles in South Africa, it is proposed that an investment allowance be made available for new investments from 1 March 2026. Producers of electric vehicles will be able to claim 150% of qualifying investment expenditure on production capacity for electric and hydrogen-powered vehicles in the first year of investment. 

A threshold increase is proposed for eligible renewable energy projects from 15MW to 30MW installed capacity for purposes of the carbon offset allowance. The amendments are effective from 1 January 2024.

Debt stabilisation

Government’s debt stabilisation strategy should be significantly bolstered by a proposed net R150bn injection from the R507bn Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which is expected to improve South Africa’s overall fiscal prospects. Gross loan debt is expected to stabilise at 75.3% of GDP in 2025/26, lower than the 77.7% projected in the 2023 medium-term budget policy statement (MTBPS). Debt service costs will decline by R30.2bn as a result over the medium-term expenditure framework (MTEF) compared to the MTBPS estimate.

Tax revenues and government expenditures

The Budget includes tax proposals to raise R15bn in revenue in 2024/25 mainly by way of not adjusting the personal tax brackets and rebates for inflation. Over the next three years tax revenue is expected to grow by R401.7bn, reaching R2.13tn and a tax-to-GDP ratio of 25.3% in 2026/27. A global minimum corporate tax, with multinational corporations subject to an effective tax rate of at least 15% will be introduced. This is expected to increase corporate tax collections by R8bn in 2026/27.

The National Budget Review notes that R251.3bn has been added to the MTEF to ensure that the salaries of teachers, doctors, nurses, police and many other public servants are funded. An amount of R7.4bn is set aside in 2024/25 for the presidential employment initiative to address unemployment, especially as it affects youth. The social wage will constitute an average of 60.2% of total non-interest spending over the next three years.

Conclusion

The National Budget Review recognises that the economy needs substantial investment to prosper. To accelerate economic growth, spur job creation and promote a broad improvement in livelihoods, structural reforms are needed to reduce binding constraints to growth. Such reforms remain central to government’s medium-term plans, with the focus on creating a competitive electricity market and efficient port and rail logistics systems.  

Main tax proposals

The main budget proposals for the 2024/2025 fiscal year are as follows: 

• An increase in taxes totalling R15bn to alleviate immediate fiscal pressures is proposed with no inflationary adjustments to the personal income tax tables or medical tax credits.
• Excise duties on alcohol will increase between 6.7% and 7.2%, while duties on certain tobacco products will increase between 4.7% and 8.2%.
• No changes to the general fuel levy or the Road Accident Fund levy are proposed.
• A global minimum corporate tax, with multinational corporations subject to an effective tax rate of at least 15% will be introduced. This is expected to increase corporate tax collections by R8bn in 2026/27.
• Producers of electric vehicles in South Africa will be able to claim 150% of qualifying investment spending as an incentive to aid the transition to new energy vehicles.