As South Africa braces for Finance Minister Enoch Godongwana’s much-anticipated budget speech on Wednesday, all eyes are set on the implications that his financial strategy will have on the nation’s economy. Stakeholders—including citizens, businesses, and international investors—are looking for clarity in a fiscal landscape that has become increasingly complex.
Frank Blackmore, KPMG’s lead economist, shared insights with Business Report regarding what to expect during the budget is delivered. According to him, the focus will largely remain on the balance between revenue generation and expenditures, with some key themes likely to emerge.
On the revenue front, Blackmore forecasted limited shifts, anticipating modest annual increases in sin taxes, a staple of South African budgeting. “South Africa already operates at a very high tax level alongside a narrow tax base, which constrains the scope for expansive revenue changes,” he explained.
On the expenditure side, increases are expected to align with inflationary trends across critical sectors such as education, healthcare, and public safety. Blackmore noted, “While there is a potential for adjustments to social grants, we do not foresee any major surprises in this area.”
Several key initiatives introduced in the recent State of the Nation Address (SONA) are likely to be emphasised in the budget. These include proposed adjustments to municipal finances, the recently announced transformation fund, and the much-debated basic income grant stemming from social relief grants. “The fiscal space is already constrained, and how to fund these additional programmes will be a focal point,” Blackmore added.
Additionally, both local and international investors, alongside rating agencies, are keenly observing signs of fiscal consolidation that have characterised recent budget speeches. The size of the public sector wage bill, which is said to exceed total personal income tax contributions from approximately 123 million public sector employees, will be scrutinised closely as well.
“What we see forecasted regarding the public sector wage bill and the debt to GDP ratio will be of paramount concern,” Blackmore stressed. Historically, every budget reflects an uptick in the debt to GDP ratio, and stakeholders will be looking for reassurance that South Africa will adhere to the metrics presented in the previous mini-budget.
Among the fastest-growing budget items is the cost of servicing debt, which dwarfs corporate income tax estimates and accounts for around 20% of government revenue. Businesses and analysts alike are eager to see how much emphasis is placed on funding for infrastructure and economic development, which have traditionally received minimal allocation despite their potential to drive future growth.
As Blackmore poignantly remarked, “It will be revealing to observe the allocation for infrastructure—an area underscored in the President’s SONA.” The expectation is that increased funding here could play a significant role in stimulating economic growth, alleviating unemployment, and enhancing overall economic inclusion.