Post Budget 2024: effective redistribution relies on a growing economic case

Alex Mabunda

Alex Mabunda

Published Feb 29, 2024


Alex Mabunda

Finance Minister Enoch Godongwana’s recent Budget speech for the 6th administration commenced with a poignant quote by economists Alberto Alesina and Dani Rodrik.

“A crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it,” emphasising the crucial link between economic growth and political imperatives like redistribution.

As he delved into the fiscal plans, Minister Godongwana addressed the pressing challenge of insufficient economic growth, which hampers revenue generation for priority areas.

Despite significant borrowings exceeding R300 billion and tapping into foreign reserves to bridge a R150bn deficit, the minister acknowledged the nation’s precarious financial position, with debt servicing costs consuming 20% of total income.

The admission highlights a critical reality: effective redistribution relies on a growing economic base. However, understanding the problem is essential.

While economic growth impacts tax revenues, experts in revenue management within local government emphasise additional critical factors beyond revenue completeness. These include addressing revenue leakages and exploring non-traditional sources of income.

There is limited discussion from the national fiscus perspective about the need to arrest conspicuous revenue leakages and consider new non-traditional revenue sources.

Undocumented employment practices and unregistered businesses trading outside tax regimes deprive the state of significant revenue. Addressing the issues requires proactive measures beyond conventional economic strategies.

Furthermore, there are other revenue line items which may seem insignificant but add revenue to the fiscus, such as various fines ranging from traffic management, fines paid through the courts, hospital and clinic fees. Others are based on the permits and licences that only the government can issue, which may be one-off or renewable annually.

New technologies and services that are emerging due to innovation will need to be licensed in some way, notably electric vehicles and renewable energy, which will provide the government with new streams of revenue. The aggregate of all the revenue line items will, undoubtedly, lead to an augmentation of government revenue. However, achieving this outcome necessitates a concerted effort to rigorously monitor each contributor.

Moreover, administrative inefficiencies contribute to unaccounted revenues across various sectors, estimated to constitute up to 15% of the national income. Streamlining administrative processes and enhancing enforcement mechanisms are essential steps in addressing the gaps.

Expanding revenue sources beyond traditional taxes offers another avenue for bolstering fiscal resilience. Exploring innovative income streams and optimising existing revenue-generating opportunities could provide substantial relief from fiscal constraints.

Translating the ideas into action presents formidable challenges. Godongwana’s candid acknowledgement in his speech provides a crucial starting point, fostering discussions on comprehensive revenue reform.

Restructuring the National Treasury to adopt a holistic approach to revenue generation, beyond reliance on the South African Revenue Service, is imperative.

Creating a Treasury unit dedicated solely to revenue enhancement across all sectors could harness untapped potentials and address systemic deficiencies.

Godongwana’s frankness in his speech has laid the groundwork for initiatives to restructure the National Treasury. The approach aims to take a comprehensive view of revenue generation, recognising the need for a multifaceted strategy.

In conclusion, Godongwana’s address serves as a catalyst for transformative fiscal policies. By acknowledging the intertwined nature of economic growth, political imperatives and revenue generation, the government lays the groundwork for meaningful reform.

Embracing a multifaceted approach to revenue management offers a pathway to a more robust and inclusive economic future, where the proverbial national pie can truly expand.

Expanding on these insights, it’s crucial to consider additional factors shaping South Africa’s economic landscape. The evolving global economic environment, characterised by increasing interconnectedness and technological advancements, presents opportunities for enhancing productivity and competitiveness. Embracing digitalisation and innovation can drive economic growth and revenue generation.

Demographic shifts, such as an ageing population and urbanisation trends, also pose challenges and opportunities for revenue management.

Adapting fiscal policies to address the demographic changes can ensure sustainability and inclusivity in revenue distribution.

Furthermore, addressing environmental sustainability and climate change resilience is integral to long-term economic viability. Investing in green technologies and transitioning towards a low-carbon economy can mitigate environmental risks while creating new revenue streams and job opportunities.

Fostering partnerships and collaboration between the public and private sectors is essential for effective revenue management. Leveraging private sector expertise and resources can drive innovation and efficiency in revenue generation initiatives.

Public-private partnerships offer a framework for jointly addressing infrastructure development, service delivery and revenue optimisation, contributing to overall economic development.

In summary, addressing the complex challenges of revenue management requires a multifaceted approach that encompasses economic, social, and environmental considerations.

Godongwana’s leadership in initiating discussions on comprehensive revenue reform sets a positive precedent for navigating the challenges and seizing opportunities for sustainable economic growth and development.

By embracing innovation, collaboration, and sustainability, South Africa can chart a course towards a more prosperous and equitable future.

Alex Mabunda is the group chief executive of Ntiyiso Consulting Group.

The Star