The recently presented Budget 2.0 has ignited a heated debate, presenting both challenges and opportunities for South Africa. It highlights the delicate balance between creating tax policies and maintaining economic equity, particularly in how VAT (Value-Added Tax) affects low-income households. Although the budget has been tabled, there is still uncertainty about whether it will be approved.

Chris Axelson, Acting Deputy Director-General: Tax and Financial Sector Policy: National Treasury provided an in-depth analysis of the budget speech where he delved into the key changes, the main drivers of growth and infrastructure development, and the budget’s impact on the South African economy at the latest PSG Think Big Webinar, hosted by award-winning journalist Alishia Seckam. He said that what we are experiencing regarding the Budget is not uncommon in a democracy and should not be viewed as a crisis.

A significant focal point of this budget is tax policy, particularly the potential increase in VAT. He believes this increase is the least damaging to economic growth. “R100 would have been an inflationary increase, however we allocated an extra R50 for old age grants to compensate for the impact of the two percentage point increase in VAT. In the revised budget, we have allocated an additional R30 as we recognise that these groups are under pressure,” says Axelson.

Although South Africa has conducted over 220 spending reviews, Axelson says the onus is on departments to implement findings to drive change. With the ongoing criticism of ineffective government spending Axelson explains, “No line item says, ‘This is an inefficient expenditure and let's cut that now’. Every line item is a programme”. Zero-based budgeting, which requires justification for every expense, is also crucial but challenging to implement.

Infrastructure is the key to growth

Although spending needs to increase, finding the funds is another challenge, especially since the post-COVID commodity boom has ended. Sectors like mining, previously propped up by high commodity prices, are now struggling. According to Axelson, one effective growth strategy is the investment in infrastructure.

“Some of the additional revenue is going to these new projects. We've got a budget facility for infrastructure that is now meeting more frequently to review and initiate projects. There's been a lot of success from Operation Vulindlela on energy transmission, and now that's extending to other types of government programmes.”

Axelson added, “Reliable water and power, along with efficient roads and transport are essential. Investing in these areas can potentially lower business costs, improve efficiency and make them more effective.”

Against this backdrop, public-private partnerships (PPPs) are highlighted as vital drivers for growth to fund, build, maintain and operate public infrastructure. Over the past four years, there has been a realisation within governmental circles about the importance of partnering with the private sector to facilitate economic initiatives.

External risks such as geopolitical tensions and global economic instability loom and Axelson admits that South Africa lacks a substantial buffer against such events. Ultimately, the journey towards approval and implementation of the budget will test the country’s financial resilience and commitment to sustainable growth.