Minister announces renewables tax break for businesses - the green subsidy race and how it’s changing the global economy

Irene Lauro

David Rees

In his National Budget Speech on Wednesday, South African Finance Minister Enoch Godongwana announced that from 1 March 2023, businesses will be able to reduce their taxable income by 125 per cent of the cost of an investment in renewables.

He added that there will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short term.

“South Africa’s budget comes at a time when the economy faces a difficult period. Loadshedding continues to cause disruption to power supplies, while the fading tailwinds of commodity prices and the increasing drag from higher interest rates leave the economy facing a slowdown this year. The government announced a concrete, three-year plan for the funding of Eskom while also announcing these large tax breaks for investments in renewable energy in a bid to tackle the current energy crisis.

“While the announcement from the Minister is not as decisive as measures taken in Western economies such as the US and EU – it is a step in the right direction and a sign that governments the world over are utilising fiscal industrial policy to drive the energy transition,” says Senior Emerging Markets Economist at Schroders, David Rees.

The move comes as part of a worldwide shift – especially in the Western world – where government intervention in economic activity via industrial policy is again gaining a lot of traction. In a bid to strengthen their supply chains and improve energy security, some key economies are increasing efforts to expand clean energy technology manufacturing.

Looking at how this is happening in the US, EU and China may reveal insights for economies in the early stages of policy implementation aimed at driving the energy transition.

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