Is Budget 2023 another damp squib?

It took just short of an hour for the Minister of Finance to deliver his 2023 Budget address and about the same amount of time for attendees to realise there were no quick fixes for South Africa’s myriad challenges. Minister Enoch Godongwana trotted out the usual promises in areas like austerity, creating an enabling environment for economic growth, fiscal discipline and getting tough on crime and corruption; but also took a ‘softly, softly’ approach to addressing cost drivers such as the public sector wage bill.

Less impressive than expected, mostly

At first take, this writer was going to dismiss the budget as a ‘damp squib’; but just in time he remembered a recent remonstration from an unhappy reader who felt that a more positive outlook was needed. PS, for the record, a ‘damp squib’ is described by Oxford Languages as ‘a situation or event which is much less impressive than expected’. The following paragraphs will gloss over the ‘big picture’ government expenditure and revenue commitments and forecasts to focus on the changes that will have the biggest impact on business and household budgets. It is, after all, these businesses and households that purchase the financial advice, products and services that you, our loyal FAnews reader, offer. And every cent that ‘sticks’ in these budgets will make it easier for you to retain clients and / or write new business. 

South Africa’s ongoing electricity crisis featured early on during the speech. “The challenges in electricity and logistics threaten to undermine the reform agenda,” he said, lamenting the 207 days of power interruptions suffered by taxpayers in 2022. To make Eskom’s life easier, National Treasury is committing to a ZAR254 billion total debt-relief arrangement for the ailing state-owned enterprise (SOE). And to make taxpayers’ lives easier, the Minister announced two tax measures to encourage businesses and households to invest in renewable energy. From 1 March 2023, businesses will be able to reduce their taxable income by 1.25 times the cost of an investment in renewables. And individuals who install rooftop solar panels will enjoy a one-year-only tax rebate of 25% of the cost of these panels, up to a maximum of ZAR15 000,00. This rebate can be used to reduce an individual’s tax liability in the 2023-24 tax year. 

Some analysts believe these concessions are inadequate. Hannes van den Berg, CEO at Consult by Momentum said that “the support package for business was very pleasing, but the support package for individuals was somewhat lacking … the maximum deduction of is too low considering the real cost of renewable energy solutions”. Small businesses certainly have reasons for cheer. “The ability to reduce taxable income by 125% of the cost of investment in renewables over the next two years is an incentive most small and medium enterprises (SMEs) will consider seriously,” commented Palesa Mabasa, Business Development Head: SME Funding at FNB.  

Overcollection: good news for taxpayers

It looks like the South African Revenue Services (SARS) will exceed revenue collection expectations in the 2022-23 year but not by as much as forecast during the Medium-term Budget Policy Statement (MTBPS) made in October last year. The Ministers said that the latest estimate of ZAR1.69 trillion in revenue for the current tax year exceeded the MTBPS by just ZARR10.3 billion. PS, that ‘just’ was added by the writer… “The improvement in revenue is due to higher collection in corporate and personal income taxes, and in customs duties [which] partially offset the lower value-added tax (VAT) estimates,” said Mr. Godongwana. This overcollection snowballed into the good news that FAnews readers are baying for, allowing the Minister to declare that there would be “no major tax proposals in Budget 2023”. 

Parliament was all smiles when the Minister announced that in addition to personal income tax relief totalling some ZAR13 billion in the current tax year, the General Fuel Levy and Road Accident Fund (RAF) levy would not be increased for 2023-24. These levies have typically been increased by inflation in the past, so the savings to businesses and households will be significant. He also announced a continuation and expansion of the refund of RAF levies for diesel used in the manufacturing process, starting 1 April 2023 and continuing for two years. Some of the changes to personal income tax thresholds include: 

• Personal income tax brackets will increase with inflation, raising the tax-free threshold from ZAR91 250,00 to ZAR95 750,00 per annum.
• Medical tax credits will increase to ZAR364,00 per month for the first two members, and to ZAR246,00 per month for additional members.
• Retirement tax tables for lump sums withdrawn before retirement, and for lump sums withdrawn at retirement, will be adjusted upwards by 10%, increasing the tax-free amount that can be withdrawn at retirement to ZAR550 000,00.
• Transfer duty table brackets will be increased by 10%, allowing properties below ZAR1.1 million to avoid any transfer duty payments. 

All of the above are considered positive for taxpayers across the board. “The zero increases in corporate tax, VAT and fuel levies will go a long way to help ease cash flow pressure on businesses as the economy continues to struggle,” said Mabasa. 

Nice, but what about the two-pots?

FAnews has reported extensively on proposed amendments to the country’s retirement funding legislation which are set to be implemented from 1 March 2024. For more details on these proposals you can revisit ‘What your clients must know about Treasury’s two-pot retirement system’ published October 2022. Unfortunately, change in this space takes place slowly. “After further consultations, government intends to publish revised draft legislation on the two-pot retirement system [including] details on the amount that could be immediately available when the system is implemented,” the Minister said. Rowan Burger, Head of Strategic Finance at Momentum Metropolitan was disappointed with the thin detail around the reform. “We do not yet have the detail we need to ensure that we can land the two-pot system efficiently come 1 March 2024; this could lead to many stakeholders arguing for a further extension to 1 March 2025,” Burger said. 

Your clients will no doubt feel somewhat of a pinch due to the 4.9% increase in excise duties on alcohol and taxes, which will result in a 10c increase per 340ml beer; 18c per 750ml bottle of wine; ZAR3,90 per 750ml bottle of spirits; and 98c on a pack of 20 cigarettes. On the topic, it was encouraging that the Minister acknowledged the challenges posed by illicit trade over the past years. “SARS has taken several steps to enhance its effectiveness in combating illicit trade, particularly in tobacco,” he said. “SARS has completed 2 316 seizures of cigarettes and tobacco products to the value of ZAR598.8 million [and] an additional ZAR18 billion worth of schedules and assessments have been raised, targeting syndicated tobacco-related crimes”. Good news indeed; though the cynic would question whether criminal syndicates bother to pay their tax dues! 

Some closing remarks on budget busters

The Minister spent some time on the matter of public sector wages. He started positively, saying that “unbudgeted wage settlements require very significant trade-offs in government spending because the wage bill is a significant cost driver; [excessive settlements] mean that funds must be clawed back in other ways”. But then this: the latest budget includes an allocation of ZAR45.6 billion “to provide for the carry-through costs of the 2022-23 public-service wage increase. By comparison, the additional ZAR66 billion given to Social Development over the medium term was shared between social grant recipients, ZAR30 billion; health, ZAR23 billion; and education, ZAR22 billion. It appears, therefore, that whatever austerity measures are promised, the public sector workers will be looked after. 

This writer will close his 2023 Budget coverage with a classic laugh-out-loud moment. It appears that after spending more than ZAR1 billion on the State Capture Commission, the Special Investigating Unit will get a generous ZAR100 million to initiate civil litigation in the special tribunal, flowing from proclamations linked to the recommendations contained therein. Before the tone gets too negative, we allow the Minister to close. “Our economy is facing significant risks [and] uncertainty is on the rise, requiring us to put the fear of failure aside and execute the difficult trade-offs needed to get from where we are now, to where we want to be in the future,” concluded Minister Godongwana. “The measures in this budget reflect these realities and the need to act boldly”. 

Writer’s thoughts:
In a post-budget presentation by Efficient Group economist, Dawie Roodt, the budget was described as ‘election oriented’ with concerns about debt servicing costs and the number of social grant recipients. Roodt was also unhappy about governments approach to the Eskom crisis and the growing RAF liability being kicked down the road. What were your immediate thoughts on Budget 2023? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.