Comment on South Africa’s Budget by Ahmed Jooma, Senior Consultant, Tax & Exchange Control, CMS South Africa.

The upcoming budget announcement scheduled for this Wednesday is based on parameters set in 2021 within the Country Partnership Framework (CPF) agreement between the Treasury and the World Bank Group. The budget is expected to adhere to these predefined parameters, even in an election year, without veering towards a populist approach, says Ahmed Jooma, Tax Consultant at CMS South Africa.

“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.” – 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.

“The challenging economic environment, characterised by sluggish growth, power shortages, reduced state capacity, and limited direct investment, may impact fiscal revenue levels and the allocation of funds towards social welfare,” he added. “The World Bank Group’s loan grant of $750 million, supporting the CPF agreement, projects a rise in the nominal unemployment rate from 33.1% in 2021 to 38.3% in 2026, reflecting subdued economic growth and fiscal challenges.”

“The budget faces the immediate task of bridging a ZAR15 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.

Jooma, emphasised the importance of addressing these structural challenges for sustainable economic stability.

“Major changes to VAT or the fuel levy are not anticipated due to their broad economic implications.” – Ahmed Jooma.

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