Following the tabling of Budget 3.0, key economic challenges have come into sharp focus, including a R75 billion deficit, rising borrowing costs, and the role of public-private partnerships in driving growth. Lead economist at KPMG, Frank Blackmore, weighed in on these pressing issues in a recent interview.*
Fuel Levy and SARS Investments Only Partially Address Deficit
One of the key measures in the budget is a proposed fuel cost increase of 15 to 16 cents per liter, alongside additional investments in the South African Revenue Service (SARS). Blackmore noted that while these measures will help, they only partially cover the R75 billion deficit.
“The numbers provided by National Treasury only partially cover that amount,” Blackmore said, pointing to other initiatives such as reduced zero-rated goods, borrowing increases, and expenditure cuts as part of the broader strategy to balance the budget over the next three years.
Risks of Rising Debt-to-GDP Ratio
With South Africa’s debt-to-GDP ratio projected to reach 77.4%, concerns have been raised about long-term borrowing risks, particularly as expenditure on critical services like health and education faces constraints. Blackmore acknowledged the challenges but noted that markets had reacted calmly.
“The peak debt is still expected this financial year, but we should see a primary surplus, meaning revenue will exceed non-interest expenses,” he explained. This, he argued, could help stabilize debt levels over the medium term.
Impact on Social Welfare and Growth
The budget avoids expanding the zero-rated goods basket and limits non-interest expenditure growth to 8%, raising questions about its impact on the social wage and economic growth. Blackmore suggested that while growth in public spending is slow, the focus on debt reduction could eventually free up resources for essential services.
“There will likely be debates around the size of government administration—if we can reduce that, more resources could be redirected to growth initiatives and social welfare,” he said.
Future Tax Measures Looming
Finance Minister Enoch Godongwana hinted at potential new tax proposals in 2026 to cover an additional R20 billion shortfall. Blackmore speculated that these could include maintaining current tax brackets without inflationary adjustments, rather than introducing new taxes.
“If SARS can improve tax collection—particularly from over 150,000 individuals identified as non-compliant—additional tax hikes may be avoided,” he said.
Conclusion: A Balancing Act
As South Africa navigates fiscal pressures, Budget 3.0 reflects a delicate balancing act between reducing debt, maintaining social services, and fostering economic growth. While some measures may prove unpopular, Blackmore emphasized that structural reforms and efficient revenue collection will be crucial in the coming years.
“The market has taken the budget relatively well, but the real test will be in implementation,” he concluded.
