23 February 2023
Written by Shaaira Sackoor – Head of Department, School of Commerce
South Africa’s Finance Minister, Enoch Godongwana, delivered the 2023 Budget Speech on 22 February at a very difficult time for the country. He sought to return the focus of the budget to “growth enhancing reforms” and to solutions for the current power crisis.
The government debt to GDP continues to increase, but it is expected to stabilise at 73.6% by 2025/2026. This has occurred in spite of the fact that the government received R93.7 billion more in tax revenue, compared to the 2022 Budget estimate.
The Budget Speech was made in the context of stage-6 loadshedding, with Eskom, the national power utility, experiencing challenges, as well as flooding in many provinces. The budget looked to incentivise companies and individuals for investing in solar energy, and it also focussed on initiatives to stabilise economic growth and address service delivery shortcomings.
The Minister highlighted the negative impact that the lack of reliable electricity supply is having on the economy. In order to address this, he advised that government will take on R254 billion of Eskom’s debt. However, he added conditions to this relief namely, the implementation of the recommendations of an independent assessment of operations, the installation of prepaid electricity meters and the handover of management of some power stations to private companies.
Additional funding is also being made available to South African Airways and the Post Office.
It is interesting to note that in the previous budget the Minister made use of the phrase “tough love” when allocating funds to failing SOEs (State-Owned Enterprises), but this is not expressed in the current budget in which the Government intends to bail out these same SOEs. Time will tell the extent to which the conditions imposed on Eskom will be implemented.
The Minister acknowledged that debt service costs could otherwise be used “to address pressing social needs or to invest in our future”.
Regarding the incentive for investments in solar energy, which was possibly the most notable and positive budget announcement, the Minister announced that companies will be able to reduce their taxable income by 125% of the cost of investing in renewable energy infrastructure. Individuals can enjoy a tax rebate of 25% on the cost of solar panels, limited to R15 000. The incentives provided for individuals does not assist low- and middle income earners, as many of households and small businesses will not be able to afford solar power. The limitation of R15 000 is also questionable in terms of its benefits due to the high cost of household solar systems.
The adjustment of personal income tax brackets and rebates in line with inflation is expected, and, as a result, no additional tax burden will be placed on South Africans. This will provide relief to low- and middle-income earners, who are already struggling with the increase in food and fuel prices. The Minister also aimed to assist households and businesses with the adjustment of retirement tax and transfer duty in line with inflation, and no increase in the fuel levy. The decision on the fuel levy will be a welcome relief to South Africans.
Food manufactures can enjoy a refund on the RAF levy for diesel used in generators. This is specifically for manufacturing and not for the transportation of the food items. This may help in the stabalisation of food prices because the refund will help prevent the high increases due to more loadshedding.
Overall, the Budget Speech went as expected. While the economic outlook is still bleak, government is trying to find ways to support economic recovery and find a solution to the major power crisis, without placing the burden on the taxpayers.