The adverse economic climate, defined by slow development, power shortages, diminished State capacity, may have an influence on fiscal revenue levels and the distribution of money for social welfare, says expert. Picture: Jairus Mmutle / GCIS
The upcoming Budget announcement on Wednesday is based on criteria established in 2021 under the Country Partnership Framework (CPF) agreement between the Treasury and the World Bank Group.
Even in an election year, the budget is supposed to stick to these predetermined limitations and avoid taking a populist stance.
This is according to senior consultant of tax and exchange control at CMS South Africa, Ahmed Jooma.
“The CPF focuses on implementing budget cuts affecting social spending, privatising state assets, increasing private sector involvement in infrastructure and social services, right-sizing the public sector wage bill, enhancing labour market flexibility, and maintaining the State’s ability to manage debt and honour guarantees to lenders of State-Owned Enterprises by achieving and sustaining a primary surplus,” said Jooma.
He went on to say that the adverse economic climate, defined by slow development, power shortages, diminished State capacity, and restricted direct investment, may have an influence on fiscal revenue levels and the distribution of money for social welfare.
Jooma noted the World Bank Group's $750 million loan grant to fund the CPF agreement, which forecasts an increase in the nominal unemployment rate from 33.1% in 2021 to 38.3% in 2026, indicating slow economic development and budgetary constraints.
“The budget faces the immediate task of bridging a R15 billion revenue gap, likely through adjustments in tax policies such as bracket creep and sin taxes, particularly on alcohol. However, major changes to VAT or the fuel levy are not anticipated due to their broad economic implications.
“Regardless of the budget outcomes or post-election developments, South Africa's deep-rooted economic issues, exacerbated by significant income and wealth disparities, highlight the need for a social compact to prevent a potential crisis,” said Jooma.
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