Old Mutual Group Comments On The 2024 Budget
22 Feb, 2024

Johann Els, Group Chief Economist at Old Mutual



The budget surpassed expectations – Johann Els, Group Chief Economist at Old Mutual


The 2024 budget presented by Finance Minister Enoch Godongwana surpassed expectations, featuring several notable positive surprises. These include lower budget deficits, continued primary surpluses, and a lower peak in the debt ratio. Fiscal consolidation as a policy is thus as strong as ever. The pragmatic approach to expenditure assumptions should also bode well for both the bond markets and the rand. Despite the potential for some market concerns regarding unforeseen expenditures, investors are likely to commend this budget’s robust focus on fiscal consolidation.


The primary surplus and conservative revenue stance during an election year is commendable. It’s notable that this year marks the first time in years that the budget did not include provisions for inflationary adjustments to the personal income tax tables and medical tax credits. The result of this will be an extra R18 billion for the fiscus.


In terms of credit ratings, I expect this budget to have a neutral impact. While the budget’s content may initially bolster the view of rating agencies, they will likely remain wary of election-related uncertainties and the ongoing risks associated with unforeseen expenditure and sluggish economic growth. Despite the positive aspects, risks to the fiscal outlook persist. Weakness in both local and global economic growth continue to present significant challenges, exacerbated by the underperformance of state-owned enterprises (SOEs), although the commitment to rescuing our SOE’s remains through various mechanisms including the recently proposed National State Enterprises Bill.



Net positive impact on the SA equity market – Jason Swartz, Portfolio Manager at Old Mutual Investment Group


The budget has led to a positive bond market outlook, although concerns continue to linger regarding overly optimistic fiscal targets. Going forward, we expect to see an improved risk appetite for bonds, especially amidst a global rating cutting cycle. However, the market faces significant event risks tied to the timing and pace of monetary policy adjustments, national elections in May, and how the budget navigates spending pressures versus revenue protection.


The budget further showed the National Treasury’s agility in deficit funding strategy, leveraging various financing sources to mitigate potential fiscal slippage. A notable wildcard is the government’s decision to utilise the Gold and Foreign Exchange contingency reserve account to fund the deficit, further offering short-term support for SA bonds.


In terms of the equity market, we perceive a net positive impact from the budget on SA equities. While certain segments may not be sensitive to GDP growth, the more SA-facing and cyclical parts of the market stand to benefit from margin improvements driven by social grant spending, efforts to address energy constraints, and advancements in rescuing Transnet. Government intervention with a conditional guarantee facility of R47BN to support Transnet’s core activities is a step in the right direction.


From a currency point of view, while the rand has been among the weakest currencies in 2023, its deteriorating fundamentals suggest that it may not be as undervalued as perceived. Despite this, the budget’s positive reception could lead to modest gains for the rand, although it will continue to face pressure until progress on growth-enhancing reforms accelerates.


In conclusion, while the budget doesn’t drastically alter our view, local assets may outperform cyclically in 2024. However, the long-term outlook remains tempered by tepid growth prospects and fiscal risks, limiting the potential for unlocking value in local assets.



Desperate times call for desperate measures: A government in crisis? – Nazrien Kader, Group Head of Tax for Old Mutual

Minister Godongwana’s third budget required strong fiscal discipline, as he emphasised in his medium-term budget forecast. While some commentators are calling this budget ‘good news’ aimed at pleasing the electorate, any commendation for the Minister must be for smart moves and fancy footwork that demonstrate a reasonable prospect of the country achieving a primary budget surplus in 2024/25 and reducing the consolidated budget deficit in the medium term.


This made possible by dipping into the country’s gold and foreign exchange contingency reserve to the tune of R150billion (over 3 years) and no tax reprieve for individual taxpayers in particular.


The bottom line is that whilst the budget held no ‘tax tremors’, Minister Godongwana will ultimately be judged on delivery.


Tax highlights


To plug the revenue collections gap of R56.1 billion, Minister Godongwana raised a total of R15billion primarily through the sleight of hand by not adjusting medical tax credits (R2billion), individual tax brackets and rebates for inflation (so-called ‘bracket creep’ raising R16billion). With the two-pot retirement system coming into effect on 01 September 2024, it is anticipated that with the uptake in withdrawals of savings benefits, a further R5 billion is expected to pour into tax coffers in 2024/25.


The Minister gave away some by not increasing fuel levies (R4billion) but took it back by way of the carbon fuel levy (expected to increase to 11cents for petrol and 14cents for diesel). No further increases in income taxes were announced, however, he hinted that the “largest tax increases” over the medium term will be aimed at personal income taxes being a “stable and resilient tax base”. Ouch!


True to form…


And as expected, above inflation-linked adjustments are expected to raise R800million from so-called ‘sin taxes’ (between 6.7% and 7.2% for alcoholic beverages, 4.7% for cigarettes/tobacco and 8.2% for pipe tobacco/cigars) as well as environmental levies (such as the plastic bag and incandescent light bulb levy).


Other stealth tax increases that crept through included an increase in carbon tax of 25.8%. No increase was announced for the Health Promotion levy (Sugar Tax). In a smart move, no changes were proposed to the VAT rate which remains at 15%.


Companies: Reprieve or Not?


Whilst the corporate tax rate remained at 27%, in line with international trends and recommendations by the OECD, South Africa sees the implementation of the Global Minimum Tax of 15% (the so-called ‘top up’ tax) with effect from 01 January 2024 payable by ultimate holding companies of multi-national enterprises operating in South Africa. This is expected to raise additional tax revenues of R8billion per annum from the 2026/27 fiscal year.


Tax incentives

Unfortunately, the sunset date for tax incentives for renewable energy has not been extended, which sees deductions for businesses ending on 28 February 2025 and the rebate for individuals ending on 28 February 2024. In an attempt to resuscitate our motor manufacturing industry, incentives for the production of electrical and hydrogen-powered vehicles in South Africa were proposed (for new investments from 1 March 2026).


Essentially, manufacturers will be able to claim 150 per cent of qualifying investment spend on production capacity in the first year of investment. This is expected to cost the fiscus an estimated R500 million for 2026/27.


Tax to GDP ratio 


All in all, our tax to GDP ratio for the 2024/25 year is projected to be 25%, a slight increase from the projected tax to GDP ratio of 24.6% for the 2023/24 year.


If the volatility in the Rand is anything to go by, having strengthened marginally as the Minister presented his budget, markets appeared to welcome the budget. It remains to be seen how the rating agents and the international world respond.


SARS capacity building ambitions


Unfortunately, the Commissioner of SARS Edward Kieswetter did not secure an additional budget allocation for its modernisation programme. Primary developments in the last fiscal year set the scene for what we can expect going forward.


In 2023, SARS released details of how it would shift to a near real time collection of Employees tax and VAT collections. In its 2022/23 Annual Report, SARS claimed that its efforts contributed an additional R231.8 billion (13.7%) to net revenues collected in the last fiscal year.


Using sophisticated data science and Artificial Intelligence (AI) to detect tax risks, in 2022/23 SARS prevented fraudulent refunds to the tune of R76.3 billion from almost two million verifications. Needless to say, we can expect more of the same.


Overall, perspective is everything…


South Africans are a resilient bunch. Even as the signs are evident, ordinary South Africans are still very hopeful. The great expectation is that now that Minister Godongwana has delivered the message, Government will mobilise and execute. Afterall, its only tangible outcomes against our laundry list of problems that will persuade the electorate.



A rather “interesting” budget and lower inflation and interest rates ahead for South Africans – Tiaan Herselman, Head of Client Value Proposition at Old Mutual Wealth


Amidst the backdrop of expenditure demands during an election year and mounting government debt, compounded by South Africa’s budget deficit projected to worsen from 4% to 4.9% of GDP, Finance Minister Enoch Godongwana delivered a rather “interesting” budget today.


In response to the R56.1 billion shortfall in tax collections compared to the 2023 Budget, government made the unexpected announcement to draw R150 billion from the Gold and Foreign Exchange Contingency Reserve Account.  This is in line with global trends and will potentially help reduce the national deficit from 4.5% (expected in 2024/2025) to 3.3% of GDP by 2026/27. We see this as a positive move that will help stimulate economic growth.


A further positive, among others, including the fact that there was no increase in the personal income tax tables, was the decision not to increase the VAT rate. Looking ahead, all indicators suggest that 2024 may witness lower inflation and interest rates for South Africans, potentially providing some relief amidst the absence of adjustments in income tax brackets.



Robust governance needed for the Climate Change Response Fund – Ronald Richman, Chief Actuary at Old Mutual Insure


We are happy to see that the Climate Change Response Fund considers both preparedness and response. However, the fund will need to have robust governance measures in place to ensure that it is used appropriately. We believe leveraging extensive expertise from the insurance sector through public-private partnerships will see meaningful value unlocked from this initiative.


It is a pity that insurance does not appear to have come into play; we encourage Government to use the tools provided by the insurance sector to help protect the South African society, especially those most vulnerable to the impact from climate change.


A challenge may be around the lack of weather data for SA and uncertainty about how the environment will evolve in the future. Addressing these challenges will require concerted efforts and innovative solutions to enhance risk assessment and preparedness measures effectively.



On electronic vehicles – Electric vehicle subsidies must include the private market


To encourage the production of electric vehicles in South Africa, government will introduce an investment allowance for new investments, beginning 1 March 2026. This will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year. The incentive will be implemented in addition to the existing support under the Automotive Production Development Programme. Government has also re-prioritised R964 million over the medium term to support the transition to electric vehicles.


We welcome investments in electric vehicle production in South Africa. From an emissions reduction perspective, we see it as a challenge that electric vehicle subsidies for the private market do not seem to be included, unless it is already in the R964 million.



Warning to consumers – Don’t just get excited about Two-Pot – John Manyike, Head of Financial Education, Old Mutual


Minister Godongwana’s announcement of the commencement of the Two-Pot System in September may have sparked excitement, but caution is warranted. While many South Africans, who are also facing severe financial strain, may be excited about the prospect of some relief through accessing their pensions, it’s essential to understand the limitations associated with tapping into their pension funds.


For example, consumers will be allowed to withdraw a minimum of R2 000 and the maximum will be 10% of the 1/3 of your savings pot, capped at R30 000. However, if you have less than R2 000 in the savings pot then you cannot withdraw.


It’s also worth noting that 2/3 of your retirement pot may not be accessed until retirement and will be paid out in monthly payments. There will also be tax and withdrawal fees charged.


Ultimately though, while the budget was good relative to expectations, concerns about economic growth persist, hindering companies from pursuing expansion ambitions as well as above-inflation salary increases. Therefore, despite potential improvements for economic growth stemming from the budget, it remains crucial for consumers to continue tightening their belts.



Two-Pot Bills must be gazette by end of March for industry to be ready, warns Old Mutual Corporate – Michelle Acton, Retirement Reform Executive at Old Mutual


Finance Minister Enoch Gondongwana’s confirmation of the Two-Pot Retirement System implementation date in his 2024 Budget Speech on Wednesday, in addition to the National Assembly’s passing of the Revenue Laws Amendment Bill this week, mark pivotal steps in South Africa’s introduction of the System by September.


The system, which allows early access to up to a third of retirement savings before retirement age, awaits further procedural steps, together with the gazetting of the Pension Funds Amendment Bill to ensure that the Two-Pot Retirement System is finalised.


Old Mutual emphasised the need for the two Bills to be gazetted by the end of March this year if Pension Funds were to be ready to facilitate member withdrawals in time for the Two-Pot Retirement System’s go-live date of 1 September 2024.










@Johann Els
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