What to expect from the budget speech this week: Eskom debt, tax hikes and more
Analysts, economists and business leaders have chimed in on what to expect from the 2023 budget speech this week Wednesday (22 February), including Eskom debt management, taxes, grants and more.
According to the National Treasury, finance minister Enoch Godongwana will deliver the national budget speech to try and strike a balance between the spending priorities of the national government as well as the limited resources on hand.
At the start of this month, the minister called on South Africans to share their suggestions on the budget, including topics such as government spending priorities, municipal finances, the sizeable budget deficit, stabilising state-owned entities, managing the energy crisis and tax revenues.
Godongwana has a tricky scenario on his hands with global and domestic events making the fiscal policy hard to balance multiple needs, especially as economic growth expectations for South Africa take a significant hit because of continual rolling blackouts.
Prof Andre Roux, an economist at Stellenbosch Business School, said that a year ago, rolling blackouts were sporadic and irritating; today, load-shedding is pervasive and intrusive.
According to the South African Reserve Bank, load shedding has cut the country’s GDP growth prospects for the year by two percentage points.
“These unfortunate events exacerbate a pre-existing set of structural imbalances that have hamstrung the economy for over a decade,” the professor added.
The CEO of Business Leadership South Africa (BLSA), Busi Mavuso, said that a solution to Eskom’s R400 billion debt burden would undoubtedly be the most important feature of the budget.
Talk of taking on a substantial share of Eskom’s debt has been pervasive. During the finance minister’s medium-term budget policy statement last year, he said that the economy and public finances are most in danger from Eskom’s performance.
Further details regarding how the government will incentivise household rooftop solar installation, as well as the tax incentives for businesses regarding self-generation and feeding back into the grid, would be a welcomed talking point for many in this year’s budget.
Taxes
The February Budget Speech is usually the main platform for the National Treasury to announce tax changes for the new financial year.
Be on the lookout for adjustments to the tax brackets, and hikes to sin taxes, fuel taxes and other levies – like the plastic bag levy, emission levies, etc.
Economists are not anticipating any significant tax changes – or the introduction of new taxes – as the South African tax base is already under a lot of pressure. Adding a further tax burden risks pushing the country over the Laffer Curve and incentivising tax avoidance or a ‘tax revolt’.
This means there is unlikely to be a VAT hike, or the introduction of a wealth tax, and the tax rates for personal income also aren’t expected to be shifted higher.
However, according to Roux, it is more likely that Treasury will hold on current taxes, rather than reduce them in any meaningful way.
This also means a likely hold on corporate income tax at 27%, putting the path to 25% in stasis.
According to Therese Havenga, the head of the business transformation at Momentum Investo, an increase will almost certainly be announced on excise duties on tobacco products and beverages, non-alcoholic and alcoholic.
Following no increase in the fuel levy last year, the minister may again resort to increasing the fuel levy, Havenga said. Although some economists have pencilled in another hold for these.
Solar tax breaks and energy solutions
A big tax measure that warrants its own focus is the introduction of tax incentives related to solar.
President Cyril Ramaphosa promised this measure would be detailed by Godongwana during his speech, and businesses and households will be keeping a keen eye on how it will be implemented.
Some have suggested that the best-case would be a rebate offered to households, deducted against any deductable income for all components – including installation – of solar equipment.
However, others have warned that the incentive could fall flat and be extremely limited and only apply to the few who can afford it.
Eyes will also be on the minister to expand Ramaphosa’s announced bounc-back energy scheme, as well as word on any load shedding relief packages for households impacted by the crisis.
Social grants
Spending on social grants will increase, with Ramaphosa also confirming in his SONA that grants will be adjusted in line with inflation.
No announcement of a basic income grant is expected at this stage, although it has been confirmed that some form of targetted grant is in the works.
The so-called social wage will likely be increased to help the poor, Momentum said. This includes things like free water, free electricity, free schooling, the free university, free health services, social relief grant (currently R350 per month) and other social grants.
Roux added that new arrangements with regard to the duration, magnitude, and beneficiaries of social security grants would undoubtedly be announced – especially the temporary social relief grant, introduced during the pandemic.
“For the time being, it seems unlikely that this area of spending, which already accounts for some 17% of total government spending, will decline,” said Roux.
Government wage bill
The public wage is likely to also be a hot topic, with the Treasury currently forecasting a 3% per annum growth for the next three years. Trade unions, however, are expected not to accept it.
Eyes will be on Godongwana to hold the line.
Economists and analysts have identified the wage bill – which takes up a third of government spending – as the biggest risk to the budget, with even the smallest deviation from the planned spending having potentially disastrous consequences.
The wage bill has historically proven to be a sensitive topic. Public servants who have not had a significant increase in several years are threatening to strike if demands for a 10%-plus increase are not met.
The government has, in the past, buckled to this pressure – which lead to the wage bill escalating to the levels it has – however, Treasury has been able to hold the line so far.
Eskom debt and SOE bailouts
Another major risk to the budget – and one which is unlikely to dissipate any time soon, given the state of things – are bailouts for failing state-owned companies.
There is hardly a state company left that does not have its hands out begging for National Treasury to give it billions of rands in relief funding; however, as with previous years, the answer is likely to be no for most while the government focuses on the big load shedding elephant in the room.
While some economists are doubtful that a full Eskom debt restructuring plan will be announced during the budget, president Ramaphosa has made promises that it will be addressed.
Treaury intends to take over one- to two-thirds of Eskom’s R400 billion-plus debt, and is currently lining up investor meetings for straight after the speech to address any questions and concerns around it.
Markets will be looking out for the exact amount of debt being taken over, the timelines and process of doing so (all at once, or staggered) as well as the strict conditions attached to the arrangement – ie, what will be expected of Eskom to guarantee it doesn’t simply end up in the exact same place.
Futuregrowth Asset Managers have warned that Treasury needs to tread carefully, and ensure that the transfer does not trigger defaults, ratings downgrades and other affairs entagled in Eskom’s debt crisis.
Read: SARS is making it harder for taxpayers to cut ties: expert
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