As the 2024 Budget Speech approaches, finance minister Enoch Godongwana has cautioned South Africans to prepare for a demanding year ahead.
In his Medium-Term Budget Policy Statement (MTBPS) issued in November 2023, the minister forecasted a government revenue deficit of around R54 billion for the 2024/25 fiscal year.
Godongwana outlined two potential strategies for addressing the government's funding challenge: expanding the tax base and improving tax administration efficiency.
Despite a projected doubling of GDP growth for 2024, concerns persist, especially as we face potential Q4 2023 GDP figures possibly signaling a technical recession, noted professional services firm, Deloitte.
Addressing the root causes of economic challenges, including port crises, failing infrastructure, and ongoing power outages, is paramount.
Moreover, navigating global uncertainties, such as geopolitical tensions and supply chain disruptions amidst a year of significant global elections, demands resilience from local businesses.
Deloitte senior associate director for transfer pricing Billy Joubert said that the country had an increasing debt burden, and while increasing taxes was one way of closing the tax gap, there was no substitute for growing the economy – or employment – amid a cost-of-living crisis.
“By far the biggest chunk of our tax revenue last year, at 35%, comes from tax on individuals, while value-added tax (VAT) contributed 25.2% of our tax revenue and that is those individuals spending money in the economy.”
“But you can only squeeze taxpayers so hard, and in the end, putting up tax rates will have the opposite effect to the primary need, which is growing the economy.”
According to Jo Mitchell-Marais, director: Restructuring and Turnaround, Financial Advisory at Deloitte, amid the many challenges, a potential silver lining emerges with the prospect of declining interest rates, albeit not expected until later in 2024. "Yet, the path ahead remains arduous for South African businesses," she said.
Real estate continues its recovery, albeit slowly, while tourism and hospitality show promising signs of rebounding. However, sectors like automotive face hurdles due to logistical issues and economic constraints, with declining vehicle sales in recent months, said Mitchell-Marais.
The grim reality of South Africa's high unemployment rate, exacerbated by job losses in sectors like mining, underscores the urgency for both job creation and preservation.
For struggling businesses, options seem limited, said Deloitte. "The negative perception surrounding business rescue often leaves firms in a 'zombie zone,' where they barely stay afloat, unable to invest in growth or repay debts. Despite anecdotal evidence suggesting a rise in such companies, liquidation filings have seen a decline, possibly indicating a reluctance to take decisive action."
The liquidation statistics provided by StatsSA pointed to a fall in liquidations year-on-year, with 1,520 companies having filed for liquidation in the year to 30 November 2023 - a decline of 13% for the same period in 20227.
"We have not seen a commensurate increase in business rescues in 2023 and trading conditions during 2023 were some of the toughest experienced since the global financial crisis in 2008. Perhaps this lack of filing for insolvency is indicative of businesses taking no decisive action and merely treading water, as is expected of a Zombie company," said Mitchell-Marais.
For the property sector, professional services firm PwC noted that National Treasury provided incentives for solar energy installations by business and individuals in 2023.
The auditing firm said it would like to see an extension beyond the 2024/25 financial year, with the threshold for households increased beyond the 25% limit so as to be more effective and improve uptake.
"Business invested quite significantly in alternative energy during 202. "We expect the minister will reflect on the success/uptake of businesses of the incentive scheme and what this has meant for the country's energy sector," PWC said.
However, the group said it does not anticipate extensions given the fiscal constraints.
PwC also called for a new funding mechanism for municipalities - especially for unfunded budgets. "With the release of the census in late 2023, there will be a requirement to adjust the equaitable share as migration would have affected population numbers in municipalities," it said.
In the past two budgets, no increases were made to the general fuel levy. "As fuel prices have largely stabilised, it is expected that the government will recommence with annual increases in fuel levies.
An inflationary increase in the fuel levy is accordingly expected in the Budget 2024," said PwC. Similarly, it expects the same outcome for the RAF levy.
Software solutions provider, Sage said it expects the following positives to come out of the budget speech:
1. Diesel refunds – It has been suggested that 2023’s diesel refunds for food producers be expanded to businesses using generators.
2. Solar energy tax credits – It is hoped tax incentives for household solar power solutions will be extended past the current deadline.
3. Catering to remote workers – The pandemic-induced shift to remote working will hopefully see an update to the tax treatment of home office and travel expenses.
Godongwana will present the budget allocation for 2024 to Parliament on Wednesday, 21 February at 14:00 in Cape Town City Hall.
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