PPS Investments: To The Point

Budget 2023: Powering South Africa

Minister Enoch Godongwana presented a budget that highlighted the strain of limited power supply on South Africans and South African businesses and the anticipated Eskom debt relief while at the same time included an increase in revenue and the first primary surplus since 2009 expected in 2023.

The primary surplus excludes interest expenditure and is expected to be marginally positive this financial year and increase to close to 2% in 2025/26. With debt-servicing expenses included the gross budget deficit is expected at 4.2%, but to consistently decline to 3.2% in 2025/26.

It has long been expected that the government would transfer a portion of Eskom debt. This transfer of debt will amount to R254bn over the next three years to relieve some of the balance sheet strain faced by Eskom. In addition, an independent review of all Eskom’s coal power plants will be completed by mid-2023 and the utility will be compelled to implement the recommendations.

This does have a negative effect on the debt-servicing costs and the gross debt to GDP level compared to the expectation in the mid-term budget last October. Debt-servicing costs are expected to average R366.8bn over the medium term, reaching R397.1bn in 2025/26. At the time of the mid-term budget, gross debt to GDP was expected to peak at 71.1% in this financial year and taper to 63.0% by 2030/31. This has however adjusted to peak at 73.6% in 2025/26 and decline to 65.9% by 2030/31.

Tax revenue collections again exceeded previous estimates with the expectation of R1.69tn for the current financial year, which exceeded last year’s budget estimate by 93.7bn and the mid-term budget by R10.3bn. As a result, income tax brackets will only be adjusted for inflation and the tax-free lump sum that can be withdrawn at retirement has increased by 10% to R550,000.

A concession for the installation of solar panels were included in the budget. For households a 25% rebate will be applied to a solar panel installation, up to R15,000. Businesses will get a tax incentive based on their renewable expenditure. Both concessions will be available for one year and is projected to
provide R4bn and R5bn relief respectively.

While there may have been components of the budget that were anticipated, like the transfer of Eskom debt, the expectation of a primary surplus thanks to increased revenue collection is welcomed. The government seems to have managed to improve the gross budget deficit without increasing taxes and while increasing the debt burden. The real test will be to see if these expectations materialise over the next few years.