Latest news with #Budget2.0
IOL News
19-06-2025
- Business
- IOL News
Absa Manufacturing Survey reveals decline in business confidence amid economic challenges
The Q2 2025 Absa Manufacturing Survey indicated that the Business confidence declined marginally to 33 points, down from 34 in Q1, an outcome some noted could have been significantly worse given prevailing conditions. Manufacturing business confidence dipped in the second quarter amid domestic and global uncertainty. This was revealed in the second quarter 2025 Absa Manufacturing Survey. Business confidence declined marginally to 33 points, down from 34 in quarter one, an outcome some noted could have been significantly worse given prevailing conditions. The manufacturing survey was conducted by the Bureau for Economic Research (BER) drawing insights from approximately 700 manufacturing businesses. Economists have echoed similar sentiments The confidence index ranges from 0 (no confidence) to 100 (extreme confidence). Absa said domestically, manufacturers also faced several challenges. These included subdued product demand, rising electricity tariffs and water supply disruptions – particularly in Gauteng, compounding to the sector's strain. Sachin Chanderdhev, a sector specialist for the Manufacturing Sector at Absa Business Banking said during the survey period, gross domestic product (GDP) forecast downgrades, the evolving Budget 2.0/3.0 and political tension within the Government of National Unity contributed to heightened local uncertainty. 'Internationally, geopolitical concerns also persisted, notwithstanding the high-profile White House engagement between South Africa and the United States,' Chanderdhev said. Domestic and export sales deteriorated sharply, falling by 22 and 32 points, respectively. Similarly, new domestic and export orders dropped by 25 and 35 points, indicating sustained demand-side pressure amid constrained consumer purchasing power. Survey indicators - tracking sectoral constraints including insufficient demand, political uncertainty and skilled labour shortages - also worsened during the period. Transport, capital and chemicals subsectors were the main contributors to the overall drop in sentiment. Notably, confidence in the Transport subsector declined steeply to 3 points, down from 27 in quarter one, which Chanderdhev suggested may reflect concern around US tariff increases and uncertainty regarding the continuity of multinational production operations in South Africa. Conversely, the furniture and metals & glass subsectors recorded confidence gains of 16 and 9 points, respectively. The latest indicators follow a two-point decline in quarter one, indicating that the manufacturing sector remained under pressure in the first half of 2025 as demand remains constrained. Gross value added by the South African manufacturing sector declined by -2% quarter-on-quarter in the first quarter, following a 1.1% contraction in quarter four. Waldo Krugell, an economics professor at North-West University, said the survey shows some really worrying numbers indicating weak demand and local and international uncertainty. 'My worry is that this again means low investment and no economic growth. The recent GDP numbers showed that if investment in machinery and equipment is excluded, private investment is now 30% lower than before the Covid pandemic," said Krugell. "There is not much that South Africa can do about real wars and trade wars elsewhere, but it is clear that we need more certainty and a lot more speed with the reforms that are underway in SA.' He said a drop of confidence in the transport sector is telling of too slow progress being made at Transnet. North West University Business School economist Professor Raymond Parsons said the Absa survey again confirms that South Africa's economic recovery is slow and uneven. 'Whilst the manufacturing sector outlook remains uncertain, retail sales in April, on the other hand, were strong. The Absa survey is a further reflection of the extent to which global and domestic uncertainty is still hampering SA's incipient economic recovery in a key business sector, Parsons said. "It emphasises why the hesitant economic upturn needs maximum policy support.' Efficient group chief economist Dawie Roodt said, 'It is clear the confidence in the broader economy is not what it is supposed to be. When we talk about manufacturing what has been happening in South Africa for many decades is we are having deindustrialisation, which means we are closing down factories.' Professor Bonke Dumisa, an independent economic analyst, said unfortunately the manufacturing sector has been negatively affected globally. 'There are significant global market jitters because of the US tariff wars. It is against this background that manufacturing, mining, and other sectors have been so negatively affected.' BUSINESS REPORT
IOL News
16-06-2025
- Business
- IOL News
A Tale of Two Forces: Fiscal vs Monetary Policy tug-of-war
The fuel levy makes up approximately 6% of the government's total revenue and is the fourth-largest revenue-generating item in the government budget, collecting R730 billion over the past decade. Image: File 'It was the best of days; it was the worst of days.' In recent weeks, South Africa has dominated international news concerning its US-South Africa relations, which nearly overshadowed the outcomes of Budget 3.0 delivered by Finance Minister Enoch Godongwana on May 21, 2025. The VAT increase proposed in Budget 2.0 was revoked and replaced with a fuel levy increase of 16 cents per litre for petrol and 15 cents for diesel. Although considered a necessary evil, the fuel levy increase affects the economy and households similarly to the scrapped VAT increase. This levy follows a 12.74% rise in electricity prices effective from April 1 and precedes a 25 basis-point repo rate cut on the 29th of May 2025, reducing the prime lending rate to 10.75%. Much appears to be occurring simultaneously or in brief bursts, affecting various economic agents in different ways. South Africa is a fuel-importing nation, relying on nearly 80% of its crude oil on imports, which constitutes a substantial part of the country's import bill. Although fuel prices are regulated in South Africa, they remain influenced by market forces, such as the exchange rate and the dollar oil price. While managing fluctuations in international fuel prices is beyond our fiscal control, levies and fees fall within our remit. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ According to the Organisation Undoing Tax Abuse (OUTA), from 2009 to 2014, South Africa's Basic Fuel Price (BFP) was the largest component of domestic fuel prices, ranging between 51% and 58% before decreasing to 30% in 2020. However, taxes and levies have been increasing, accounting for almost 70% of the fuel price in 2020. The fuel levy makes up approximately 6% of the government's total revenue and is the fourth-largest revenue-generating item in the government budget, collecting R730 billion over the past decade. Although it is not the biggest source of government revenue, it generates more revenue than customs duties or alcohol and tobacco excise duties, which should have been the sacrificial lamb protecting the local market. As reported by the Department of Mineral Resources and Energy (DMRE), in December 2021, the price of inland 95-octane petrol stood at R20.29, comprising a basic fuel price of R9.74 (48%), taxes and levies of R6.67 (33%), retail and wholesale margins of R2.74 (14%), and storage and distribution costs of R1.14 (6%). The Road Accident Fund levy of R2.18 (1%) was not included. South Africa's fuel prices are heavily influenced by levies and taxes rather than by global market fluctuations. According to the Stats SA 2021 report, there are 13 different charges depending on the type of fuel and one's place of residence. Are we undermining our economy by self-sabotaging? The South African Petroleum Industry Association (Sapia) reports that fuel prices rose by 21% in 2017/2018, leading to cost-push inflation and economic growth falling below 1%. This latest levy increase is likely to have a similar impact in an already frail economic environment. Higher electricity and fuel prices raise production and operational costs, leading to a decrease in aggregate supply, as businesses rely on the transportation of goods for production and retail purposes. This ultimately results in lower output, which, in turn, affects employment, wages, and investment as firms implement cost-containment measures to remain productive. As businesses pass the burden onto consumers by charging higher prices for their products and services, this leads to cost-push inflation pressures that alter spending behaviour, as consumers make trade-offs between food, repaying debt, electricity, commutes, and other essential household expenses. Consequently, aggregate demand in the economy will dampen as disposable income is eroded, thereby hindering economic growth. Although businesses and consumers were cushioned by the R1.27 drop in the basic fuel price shortly after the increase in the fuel levy, in the long term, the higher levy undermines South Africa's economic growth. An additional financial relief for consumers was a 0.25% reduction in the prime rate from 11% to 10.75%. Although this interest rate reprieve was moderately welcomed by South Africans, if higher fuel levies drive inflation, the South African Reserve Bank (SARB) may hesitate to cut rates further, limiting growth stimulus. Additionally, a fuel levy hike raises costs immediately, while rate cuts have a lag effect, thus taking time to stimulate growth. Rate cuts benefit indebted middle-class borrowers, boost borrowing, encourage business expansion, and stimulate economic activity, but do not offset fuel inflation for the poor. The fuel levy increase risks hurting short-term growth and rising inequality, disproportionately affecting low-income earners and households. These two policy decisions have opposite impacts. The fuel levy hike increases inflation, thereby reducing economic activity, while an interest rate cut spurs growth. To counter this challenging balancing act, the economy must grow at a higher rate to increase tax revenues and productive government spending. A higher growth rate will create jobs, reducing the number of economically inactive workers who rely on social grants as they shift to personal taxpayers. Growth also signifies positive business performance. This will broaden the tax base as more individuals gain employment, diverting the government's spending from social grants to more growth-enhancing initiatives. Moreover, corporate taxes will also increase. Very little can be accomplished with the low growth rate of 0.6% recorded in 2024 and 0.1% during the first quarter of 2025. If growth continues on this downward trajectory, government revenue and public expenditure will remain constrained.
Daily Maverick
04-06-2025
- Business
- Daily Maverick
SA almost has a Budget — finance committee adopts fiscal framework, despite MK and EFF rejections
After multiple false starts, a key aspect of the 2025 Budget was adopted in Parliament on Wednesday, with the support of the ANC and DA. When the second iteration of the 2025 Budget came before Parliament's finance committee in April, the divisions in the Government of National Unity (GNU) were on full display. The Democratic Alliance (DA) refused to support the adoption of the fiscal framework and it only moved through the committees and then the National Assembly thanks to the support of non-GNU parties such as ActionSA. On Wednesday, 4 June, the GNU's largest members, the African National Congress (ANC) and DA, finally found each other and the fiscal framework was passed by a vote of seven to three. The passing of the fiscal framework is a key step in the budgeting process. This framework establishes economic policy and revenue projections and sets the overall limits to government spending. This report must be adopted within 16 days after Finance Minister Enoch Godongwana tables the Budget. While the DA opposed the fiscal framework in Budget 2.0, Wednesday's situation was different, with both the ANC and DA supporting the measure against the opposition of the Economic Freedom Fighters (EFF) and uMkhonto Wesizwe (MK) party. Wednesday's meeting was briefly halted to find a bigger venue in Parliament to accommodate all the MPs, journalists and officials, as well as ensure it was recorded, in line with MPs' requests. There were several comments and queries by MK party MPs, including axed finance minister Des van Rooyen and former Eskom boss Brian Molefe. At one point, Molefe said the fiscal framework should include the expanded unemployment rate (43.1%) rather than the narrow definition (32.9%), but his suggestion was shot down. The MK and EFF also criticised the increase in the fuel levy, with Molefe describing it as 'regressive' and 'not pro-growth'. On Tuesday, the Western Cape Division of the High Court dismissed the EFF's urgent bid to block the fuel levy increase. Issues were raised on whether the Budget was that of an austerity budget, denied by the ANC – an answer the MK party and EFF continued to reject. It was questioned several times during the meeting whether MPs were making points simply to grandstand 'because there were cameras'. This seemed evident when EFF MP Omphile Maotwe raised objections over a section of the report that dealt with 'not providing bailouts' to state-owned entities (SOEs), rather than 'capitalising SOEs'. Maotwe said she was at Transnet when she claimed it had been successful under the management of fellow finance committee member Brian Molefe – the former Transnet CEO turned State Capture accused, and now a member of the MK Party on its parliamentary benches. Next week, the National Assembly will vote on whether to adopt the fiscal framework in a sitting at the Cape Town International Convention Centre. When the fiscal framework is passed, other steps in the budgeting process include the passing of the Division of Revenue Bill and the Appropriation Bill. During the tabling of the fiscal framework in the National Assembly in April, the ANC appeared jubilant when it was passed without the DA's support, while the DA had harsh words for the ANC and other parties who supported that version of the Budget. It's unlikely there will be such acrimony next week. DM
The Citizen
21-05-2025
- Business
- The Citizen
Sensible or underwhelming? Economists react to Godongwana's Budget 3.0
After the minister tried to push though VAT increases in his first two budget attempts, Budget 3.0 will still affect citizens' pockets. It was indeed third time lucky for Minister of Finance Enoch Godongwana when he delivered Budget 3.0 in parliament on Wednesday afternoon with the blessing of all the parties in the government of national unity. Frank Blackmore, lead economist at KPMG, says probably the most impressive thing about Budget 3.0 was that we now have a budget at all, although the contents were a bit underwhelming. 'There were many questions about what we are going to do with the R75 billion deficit over the medium-term period with no VAT increase. That was answered by this budget in the form of: some increases in the fuel levy of 15-16 cents per litre; an increase in borrowing with debt going up to 77.4% of gross domestic product (GDP), 1.2% more than in Budget 2.0; no expansion of the zero-rated food basket; reduced expenditure over the Medium Term Expenditure Framework (MTEF) period; the budgets of frontline services such as health and education growing, but by less than the previous budgetary amounts; some additional investment will go to Sars to switch those assets in order to collect more revenue. ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Not much thought about issues confronting SA Blackmore says it seemed that the budget was focused on these points without dealing with the issues confronting South Africa at this point. 'There were reductions in a lot of areas that were obviously necessary due to lower revenues, except for the public sector wage bill and debt deficit which are increasing.' He says the negatives in Budget 3.0 are: the increased debt and deficit taking more resources away from frontline services and economic growth initiatives, such as the social wage the reduction in the growth of non-interest expenditure no real increase in spending to grow the economy a mention that new tax proposals will come in for 2026 to cover an additional R20 billion gap for the full cost for that period. He did not find much on the positive side but says the public private partnerships and continuing structural reforms, as well as Operation Vulindlela Phase 2 are positive, but are nowhere near large enough to make a meaningful difference at this point to the growth outlook. ALSO READ: Godongwana cuts government spending to offset VAT shortfall Budget 3.0 a more realistic picture of SA's macroeconomic outlook Jee-A van der Linde, senior economist at Oxford Economics Africa, says Treasury's downwardly revised GDP growth projections and higher debt-to-GDP ratios paint a more realistic picture of South Africa's macroeconomic outlook. He says it is a positive takeaway that gross loan debt projections have not increased since March and Treasury still expects debt levels to stabilise, although at a higher level. Gross loan debt is expected to increase from R5.69 trillion in 2024/25 to R6.82 trillion in 2027/28. 'Meanwhile, debt-service cost projections were lowered by R1.8 billion over the MTEF period compared to the March 2025 Budget. South Africa's debt service costs remain alarmingly high at R1.3 trillion over the MTEF and we expect it to continue rising rapidly over the forecast period. 'South Africa's deteriorating debt-to-GDP ratio remains a concern and we continue to maintain that gross government debt will reach 80% of GDP in the near term. The sustainability of South Africa's fiscal outlook hinges on economic growth accelerating in the near term, as fiscal consolidation will prove challenging amid elevated spending pressures.' Was it third time lucky for Godongwana? Van der Linde says Budget 3.0 is more sensible and depicts a stark picture of South Africa's finances. 'Markets will welcome Treasury's commitment to fiscal consolidation. 'While not of its own making, Treasury's credibility has been unduly dented as a result of the budget wrangling. Political parties have been climbing over each other trying to claim credit for Treasury reversing course on the tax proposals that scuppered the first and second budget attempts.' ALSO READ: Budget 3.0: Opposition parties clash over impact on poor Very high execution risk Patrick Buthelezi, economist at Sanlam Investments, says the execution risk for the budget remains very high as many spending pressures require funding, such as closing the gap created by a freeze on PEPFAR support, political party funding leading up to the local government elections and national social dialogue. 'Given the projected economic growth outlook, the pressure on the fiscus can be expected to continue. The finance minister hinted that revenue-raising measures might be introduced in the 2026 budget. The GNU needs to reach consensus on viable revenue-raising proposals, including expenditure cuts.' Tertia Jacobs, treasury economist and fixed income specialist at Investec, says for her a key takeaway is that the GNU and Treasury continue to stick to fiscal consolidation. 'Any new increases in spending must be financed by higher tax increases and the new spending increases are allocated between infrastructure and frontline services as well as Sars getting a bit more money because they will become more important in widening the tax base in coming years. 'All in all, the budget is probably as good as we can get in the context of sluggish growth, but these are indications that the GNU and the ANC are willing to work together. ALSO READ: Budget 3.0: Alcohol and cigarette prices will increase — here's by how much Commitment to stabilising government debt Dr Elna Moolman, head of South Africa macroeconomic research at the Standard Bank Group, says in line with their long-standing expectation, all three budgets this year remained committed to stabilising government's debt-GDP ratio. 'The negative revenue impact of backtracking on the VAT increases as well as the weaker economic growth trajectory is counteracted, as we expected, by a combination of revenue and spending adjustments. 'The confirmation of government's commitment to fiscal consolidation, with the debt-GDP ratio peaking this year and bond issuance kept unchanged, should provide some reassurance to financial markets, as we expected. 'The macroeconomic policy reviews and fiscal reforms, alongside ongoing traction with Operation Vulindlela's growth-supportive reforms, also underpin likely fiscal and growth improvements in the medium term. 'However, entrenched investor concerns about adverse fiscal and growth risks will not be negated and notwithstanding the imminent peak in the debt-GDP ratio and unchanged nominal debt trajectory, investors will emphasise yet another increase in the debt-GDP trajectory that will limit the potential positive financial market impact from any positive fiscal developments.'
Daily Maverick
21-05-2025
- Business
- Daily Maverick
State of the spend: Charting Budget 3.0
You'd be forgiven for losing track. South Africa is now on Budget Speech 3.0 in just four months. Fiscal policy keeps morphing to meet political pressures and economic realities and the National Treasury's latest figures reveal some subtle shifts and trade-offs. Here is the visualised story behind the numbers, taking a look at where every R100 of your tax goes, what's driving up debt, and how the scrapped VAT proposal rewrote the books in-between budgets. Highlights from 2025's third budget reveals a larger negative budget balance than Budget 2.0, tabled 12 March, and a loss in GDP of about R2-billion since National Treasury's first try in February. After the proposed VAT hike was scrapped following legal and political pressure, Finance Minister Enoch Godongwana announced on 21 May that a general fuel levy will come into effect on 4 June. No changes were made to other personal income tax or any tax brackets, but a R20-billion tax plan is set to be revealed in Budget 2026, unless SARS can strap up and rake in some extra rands. Speaking of tax… have you ever wondered exactly what the government does with the money that's dutifully subtracted from your pay cheque every month? Looking at the National Treasury's consolidated spending by functional and economic classification, we've analysed which departments score and which departments only manage to rake a few cents. The debt-to-GDP ration of the country is an expression of how manageable the country's debt is. Budget 3.0 revealed the highest metric in this category since 1994. The country's GDP is also expected to grow only 1.4% in 2025. The country's gross borrowing requirement, or borrowing cost, saw an increase of R6.24-billion as Treasury had to stretch out their hands to plug the hole left by the withdrawn VAT hike. This budget projects consolidated spending growth averaging 5.4% annually, from R2.4 trillion in 2024/25 to R2.81 trillion in 2027/2028. Departments have largely retained their baselines, while the Treasury aimed to keep service delivery areas protected. In case you wanted to know how Budget 3.0 stacks up against its previous iterations… Spot some changes in decisions about personal income tax rebates, VAT rates dropping from 2% to 0.5% then to none at all, and a public-sector wage bill whose allocated spending over the next three years has remained unchanged, even three budgets later. DM
