South Africa’s Finance minister Enoch Godongwana delivered the 2023 National Budget Speech on Wednesday, 22 February.
The budget touched on many points and topics, including the country’s current economic standing, its growth estimates, the energy sector and the continual struggle to cope with the indebted power utility Eskom, new tax proposals and the social wage.
The energy crisis was, however, the main talking point for this year’s speech, with more details of Eskom debt relief being provided alongside two new tax measures to incentivise investment into renewable energy and independent electricity generation.
South Africa’s economy currently faces a tipping point, with growth estimates from analysts and researchers alike pointing downwards. Continual rolling blackouts that are showing little sign of stopping are the main threat to economic growth in the country.
According to Godongwana, since the 2022 budget, global growth estimates for 2023 have been revised lower.
“The International Monetary Fund projects global growth to slow from an estimated 3.4% in 2022 to 2.9% in 2023,” said the minister.
“Global economic risks remain high, including those related to the ongoing war in Ukraine, and could impede growth if they materialise.”
For this year’s budget, Godongwana said that government would maintain a prudent fiscal approach with a focus on bringing the deficit down without resorting to a hike in taxes or further cuts to the social wage and infrastructure.
“The consolidated fiscal deficit is projected at 4.2% of GDP for 2022/23, and this will reach 3.2% in 2025/26,” said the minister.
He said that government debt is very high, with gross debt stock projected to increase from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26.
Overall, the 2023 Budget allocates additional funding totalling R227 billion over the medium term.
Here are the biggest takeaways from the mid-term budget:
Eskom debt relief
The finance minister said that Treasury is proposing a total debt-relief arrangement for Eskom of R254 billion.
He said that debt relief would be provided in two parts, namely:
- R184 billion – representing Eskoms full debt settlement requirement in three parts over the medium term.
- R70 billion – a direct take-over of Eskom loan portfolio in 2025/26.
As a result of the debt relief, Ekom will not require further borrowing during the relief period, said Godongwana.
The minister stressed that the upcoming arrangement for Eskom will be subject to strict conditions that aim to protect public funds, including, among others, that Eskom prioritises capital expenditure during the period and focus on maintenance of the existing generation fleet.
That debt relief is also aimed at settling debt and interest payments only.
Energy support package
In line with announcements made by President Cyril Ramaphosa in his latest State of The Nation Address (SONA), the finance minister said that there are two new tax measures to encourage businesses and individuals to invest in renewable energy and increase electricity generation in South Africa.
From 1 March 2023:
- Businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables.
- Individuals who install rooftop solar panels will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15,000.
In terms of the rooftop solar rebate, he said that it could be used to reduce their tax liability in the 2023/24 tax year and is available for one year.
“From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables,” said Godongwana.
The head of the Treasury said that in April 2023, it would launch the Energy Bounce Back Scheme, which will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.
Revenue, retirement and tax proposals
Under the 2023 budget, there were no major tax proposals – a welcomed change by consumers and businesses alike.
According to the minister, the personal income tax brackets will be fully adjusted for inflation, which will increase the tax-free threshold from R91,250 to R95,750.
Godongwana announced that to promote investments in renewable energy, the general fuel levy and the Road Accident Fuel levy will not be increased this year.
“Medical tax credits will also be increased by inflation, to R364 per month for the first two members, and to R246 per month for additional members.”
“The retirement tax tables for lump sums withdrawn before retirement and for lump sums withdrawn at retirement will be adjusted upwards by 10 per cent. This means that the tax-free amount that can be withdrawn at retirement increases to R550,000,” he said.
In terms of retirement, from 1 March 2024, the new “two-pot” retirement system will be implemented. New draft of the legislation is in the pipeline, said Godongwana.
Grants
The department of Social Development has been allocated R66 billion of the national budget.
In terms of the current social relief distress grant (SRD grant) that was intended to be temporary during the pandemic, a further R36 billion has been given for the extension of the grant until March 2024.
The other R30 billion granted to the department will now be used for inflation-linked increases for other grants, such as the old age and disability grant and the childhood support grant, among more.
Updated increases in social grants are as follows:
- The old age grant will go up from R1,985 to R2,085
- The old age grants for those over the age of 75 will increase to R2,105
- Grants for war veterans increase to some R2,105 from R2,005
- Disability grants go up to R2,085
- The Foster care grant increases by 5.1% to R1,125
- Care dependency grants rise to R2,085 from R1,985
- Child support grants go up by 5.2% to R505
- Grant-in-aid rises to R505 – up by 5.2%
Public sector wage
The budget carries across the costs of the wage increase from 2022, said Godongowana; however, it now includes pay progression, a housing allowance and other benefits for civil servants.
Speaking on the wage negotiations that have recently commenced, the minister said that the budget does not pre-empt the outcomes; however, the future wage must strike a balance between fair pay, fiscal sustainability and the need for additional staff.
Sin tax
The sugar tax saw little change in light of the difficult operating environment for the sugar industry – the health promotion levy remained unchanged.
Beer and other alcoholic beverages were, however, not as lucky. The government has proposed to increase the excise duties associated with alcohol and tobacco to 4.9% – in line with expected inflation.
Summarily, this means that a South African will pay this much more:
- 10 cents up on a 340-millilitre can of beer
- 18 cents up on a 750-millilitre bottle of wine
- R3.90 increase on a 750-millilitre bottle of spirits
- R5.47 up for a 23-gram cigar by R5.47
- 98 cents more on a pack of 20 cigarettes
