26 Feb 2023 Budget: The Electricity Speech
2023 Budget: The Electricity Speech
After the rather underwhelming State of the Nation Address, South Africans weren’t too enthused about the Budget Speech.
While Finance Minister Enoch Godongwana didn’t appease the masses on all fronts, some bold concessions – especially under the latest State of Disaster – have impressed some.
Rand Rescue takes a look.
Bleak economic outlook
Minister Godongwana didn’t beat around the bush when it came to the state of the global economy. Projected growth foreseen at the time of the 2022 Budget Speech have been adjusted downward, from 3.4 to 2.9%.
Locally, the South African economy showed some growth of 2.5%, an upward revision from the previous 1.9% projection. These numbers don’t paint the full picture, however, as the real GDP growth is foreseen to average at 1.4% for the next two years – lower growth than estimated in October 2022 (and a mere 0.9% for 2023).
Despite challenges, the government has managed to reduce its fiscal deficit without resorting to tax increases or infrastructure and wage cuts. The deficit is projected to see a 1% reduction by 2025/26.
The major culprit in all of SA’s economic woes – Eskom – was called out for the high levels of government debt – which is projected to increase from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26.
The fiscal shock of Eskom
It’s no surprise that the budget speech would focus heavily on South Africa’s electricity supply. 2022 saw record levels of loadshedding – 207 days compared to the 75 days in 2021. And if current numbers are anything to go by we’re likely to see a full 364 days of loadshedding in 2023.
As with all previous years, the government announced another bail-out for Eskom. Most importantly, it will provide debt-relief to Eskom to the amount of R254 billion. This is far more significant than previous estimates. In fact, the national treasury had approved bailouts of R21.9 billion for 2023/2024 and as of July 2022,
Eskom had already used R281.6 billion of their R350 billion government guaranteed debt facility. Minister Godongwana announced in his speech that R337 billion of Eskom’s debt was now government guaranteed, which leaves a meagre R13 billion to work with…or at least it will have, had government not decided to up the ante.
The R281.6 billion will be split into two parts – the first is a R184 billion full debt settlement and the second is a direct takeover of up to R70 billion of Eskom’s loan portfolio. It seems somewhat preposterous that South African taxpayers would once more be asked to foot the bill of financial incentives Eskom offered to its own staff in the form of loans, but nothing’s surprising at this point.
Eskom’s cooperation required
The minister’s assertion that Eskom will need to comply with strict rules to qualify for this debt relief is positively laughable. If Eskom had any intention of cooperating with any type of governance, we’d have seen signs of their compliance instead of a ramping up of mismanagement. With their last CEO bullied out through a combination of joint ineptitude and threats on his life, one has to wonder how the government plans to invoke their authority all of a sudden.
Part of the debt relief plan includes addressing the other erring parties – Municipalities. For while Eskom is undoubtedly the masters of their own demise, a climbing municipal debt for municipalities who simply don’t pay their Eskom bills doesn’t help the situation much. As is the trend currently, the government aims to solve the problem by offering more relief to municipalities as well by prompting Eskom to offer incentivised relief to municipalities with unaffordable debt.
One pro is the aim to install prepaid meters at non-compliant municipalities which will prevent them from incurring more debt.
Relief and incentives to the public
One of the most anticipated parts of the 2023 Budget is undoubtedly the relief measures and incentives offered to the public to counter Eskom’s impact and consumer reliance on their services.
Some of the fiscal support packages under the State of Disaster include:
– A taxable income reduction of 125% of the cost of investment in renewables for businesses with no threshold on the size of projects (for 2 years)
– A 25% tax rebate of the cost of solar panels for individuals who install rooftop solar, capped at R15 000. (for 1 year)
– Government guaranteed solar-related loans for small and medium enterprises (20% first-loss basis)
To qualify for the individual rebate, South Africans are to acquire a certificate of compliance for installation of solar at their private residences – the caveat is that the rebate will only apply to installations issued from 1 March 2023 to 29 February 2024. This means that South Africans who have already turned to solar won’t be able to claim such rebate since it is only available for one tax year. The rebate is capped at R15 000 per individual.
Some of the other pivotal points mentioned by the Finance Minister include:
– An estimated R903 projected for infrastructure spend over the medium term – most of which will go to State Owned Enterprises, public entities and public-private partnerships.
– A focus on infrastructure, water and sanitation, rural bridges and public health facilities.
– Several large scale infrastructure and water projects are underway or will begin later this year.
– Tax revenue collection for 2022/23 will overshoot budget estimates in 2022 – from R93.7 billion to R1.69 trillion.
– Tax relief of R13 billion.
– General fuel levies and RAF levies will not increase for the 2023/24 financial year.
– Personal income tax brackets adjusted for inflation – increasing tax-free threshold from R91 250 to R95 750.
– Medical tax credits also adjusted for inflation.
– Retirement tax tables for lump sum withdrawal before and at retirement will both be adjusted upward by 10%. This increases the tax-free amount which can be withdrawn at retirement to R550 000.
– Government will publish revised draft legislation for the ‘two-pot’ retirement system (to be implemented from 1 Mar 2024).
– Excise duties for alcohol and tobacco will increase by 4.9%.
– Covid-19 social relief grants to be extended until 31 March 2024.
– Old age, disability and child support grants to be increased.
– Increased spending on SAPS recruitment.
– Increased spending on NPA and SIU activities to address State Capture efforts.
– Increase on provincial allocations of revenue from R92.7 billion to R2.17 billion over medium term.
– Increased focus on financial crimes.
– Increased spending on disaster relief for areas affected by flooding under the national disaster. (R695 million for 2023 and R1 billion for 2024).
Minister Godongwana’s aim on relieving the burden of loadshedding through renewable incentives is certainly laudable and definitely the right way to go, but no one’s fooled by yet another plan to get Eskom back on track.
The reality is that business and individual income is already spread so thin that even incentives or rebates won’t make it possible for most South Africans to foot the bill for solar installation in the first place.
Household consumption has contracted by an estimated 1.8% year-on-year and capital formation has reduced from 4.2% to 1.3% year-on-year – an indication that consumers simply don’t have the means to spend on any niceties – even if those niceties are actually essentials like electricity and clean water. And, as we’ve seen in numerous parts of the country – loadshedding has had a major impact on numerous peripheral services such as water desalination and purification.
We’ll have to wait and see if the ‘amped up’ electricity plan will yield any better results than previous attempts, but we wouldn’t advise holding your breath.
Staying around or heading out?
All South Africans need to decide whether they want to stay around to see if Eskom can make a turnaround, or see if the grass is truly greener elsewhere.
If you are considering moving abroad, talk to Rand Rescue about your financial concerns and we’ll get you sorted. Just leave your details below and we’ll get back to you.
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