Redefining economic growth: South Africa's budget blueprint for reform

Source: Supplied. Miyelani Holeni, group chief advisor at Ntiyiso Consulting Group.

A “good budget” tackles healthcare, housing, education and infrastructure, balancing industry-specific incentives with broad-based grants. Although this year’s national budget has been marred by delays and fundamental disagreements over financing methods, its significance remains undiminished.

A budget of redress for citizens

South Africa’s post-apartheid journey has been defined by a mission to heal a deeply divided society. Early efforts like the Reconstruction and Development Programme invested billions of rands in housing, healthcare and education, resulting in the construction of millions of homes and marked improvements in basic services.

Today, the National Development Plan 2030 continues this legacy with ambitious allocations such as R259-billion for education in the 2023/24 budget. These funds are earmarked for upgrading infrastructure, training teachers and expanding early childhood development.

Despite these substantial investments, nearly 63% of South Africans – around 38-million people – live below the upper-middle-income poverty line. Unemployment remains stubbornly high, fluctuating between 32% and 33.5%. A renewed focus on unlocking human potential could complement ongoing redress initiatives, setting the stage for more sustainable progress.

Economic mobility: investing in human potential

A nation’s budget should lift its citizens out of poverty and set them on a path to economic contribution. Economic mobility is a cornerstone of sustainable development, and South Africa’s fiscal plan reflects this ambition through significant investments in education and job creation.

Initiatives like the National Student Financial Aid Scheme and the Youth Employment Service programme aim to equip young people with the skills necessary to break the cycle of poverty. However, modest GDP growth has limited job-creation impact: a 1% increase in GDP generates only 30,000 to 50,000 new jobs – far too few to absorb a rapidly growing labour force.

International examples reinforce the need for robust human capital investment. Singapore’s SkillsFuture programme and Germany’s dual education system illustrate how focused educational investments can yield measurable economic outcomes.

In South Africa, a country where youth unemployment is pervasive and the Gini coefficient (a measure of income inequality) soars to 63, financing practical skills transfer programmes is imperative. Such efforts would ensure that citizens are job-ready or able to launch businesses, enhancing South Africa’s global competitiveness.

Competitive advantage: strategic investments for global relevance

With an estimated GDP of US$405bn, South Africa’s economy is modest compared to powerhouses like China (US$17tn), India (US$3.7tn), Brazil (US$2.3tn) and Russia (US$2.2tn). South Africa contributes roughly 1.4% of the combined GDP of the original Brics nations.

To secure a meaningful role in the global economy, the country must strategically invest in sectors that build a competitive advantage – especially manufacturing, industrial capabilities and technological innovation, with renewables emerging as a key area.

China’s meteoric rise offers a blueprint for transformation. Over the past 40 years, China shifted from low-income status to becoming the world’s second-largest economy by embracing a series of reforms. In contrast, many of South Africa’s industrial and special economic zones remain underutilised “white elephants”, while small business initiatives often remain more rhetorical than effective.

A decisive reallocation of budget resources towards structural reforms and industrialisation could spark medium- to long-term growth and enhance global competitiveness.

Economic growth: rethinking fiscal priorities

Recent projections by the World Bank suggest South Africa’s GDP may grow by 1.8% this year, possibly rising to 2% in the medium term, despite government targets of 3%. At such modest growth rates, the transition to high-income status could take as long as 60 years. Meanwhile, global indices consistently rank South Africa as a laggard in competitiveness.

Social grants have served as a vital safety net for over 28-million citizens, yet they cannot drive long-term economic expansion. The recent budget impasse – sparked by plans to increase VAT by 2% to fund the Social Relief of Distress programme, among others – underscores the risks of a consumptive budgeting approach.

Data from the South African Revenue Service (SARS) reveals that just 100 companies contribute 90% of the nation’s tax revenue, indicating an overreliance on taxing a narrow base. South Africa must urgently diversify its revenue sources and shift from its reliance on taxing its way out of sticky situations.

To mitigate these risks, the National Treasury must reconfigure fiscal financing by expanding revenue streams beyond taxes. Proposals include increasing tariffs, licensing fees and service charges and establishing a dedicated revenue-generation programme. Such a programme, modelled after reforms at Sars, could initially generate an estimated R500bn over the Medium-Term Revenue and Expenditure Framework, potentially rising to R1tn annually by the fifth year and boosting total revenue to R3tn.

Budgeting for the future we want

South Africa’s budget should be far more than a record of fiscal balances; it must serve as a strategic roadmap for national renewal. Shifting from consumptive social spending to targeted investments in innovation and industrialisation represents a promising way forward.