Finance Minister, Enoch Godongwana, delivered the National Budget speech on Wednesday, 22 February 2023. It’s been a tense period for bondholders as they waited for the finance minister to make clear the exact amount of Eskom debt the government will take on, the mechanism for transfer and the conditions placed upon Eskom for this bailout.
Mr Godongwana emphasized the fact that this was not an austerity budget given the fact that SARS collected R94 billion more than expected in February last year.
Below is a high–level summary of the key announcements from his speech:
- Real GDP growth of 1.4% pa is projected for 2023 – 2025.
- Eskom Debt – Government will take on R254 billion of Eskom’s debt.
- Renewable energy incentives
– Businesses can reduce their taxable income by 125% of the cost of an investment in renewables.
– Those that 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 and for one year only.
- Sin Taxes – 4.9% increase on alcohol and tobacco.
- Personal Income Tax relief of R13 billion – tax tables adjusted for inflation.
- Transfer Duties – The brackets for transfer duties will be adjusted upwards by 10%.
- Corporate income tax – For companies with years of assessment ending on or after 31 March 2023, the corporate income tax rate will reduce to 27%.
- Taxation of Retirement Lump sums pre and at retirement – The retirement tax tables for lump sums will be adjusted upwards by 10%.
- Government Spending over the next three years – R7,08 trillion
– 51% allocated to social welfare.
– R14 Billion to fight crime and corruption.
– R695 million for immediate response in this tax year.
– R1 billion will be available next year.
- Road Accident Fund and Fuel Levy – No increases.
- Social grants have increased slightly below inflation.
No changes were implemented in the following areas:
- Retirement Annuity contribution deductions
- Interest withholding tax for non-residents
So what………….!?
Well, thanks to some relief on the income tax side, zero increase on the fuel and road accident fund levy, we should all have a little bit more money in our pockets. Also noteworthy is the increase in the pre and at retirement lump sum tax tables, so for those retiring from approved investments (retirement annuities, pension funds, provident funds, preservation funds) will be able to improve the liquidity position of their portfolios.
For those that been on the fence about installing roof top solar panels, the government has given you a small incentive to kick-start your renewable energy project for the next twelve months.
Overall, the impact of the 2023 Budget Speech on investors is fairly neutral, however, we owe a lot of people a lot of money, and although some relief has been granted to taxpayers, there is a mountain to climb and it will take continued discipline from Treasury to improve South Africa’s fiscus.
However, in an environment that is less than optimistic, it’s important to note some WINS for S.A. Inc.
1. The State Capture Commission cost the country R1 billion but we have recovered R4 billion in ill gotten gains.
2. The NPA & SIU have seized assets in excess of R13 billion.
3. The reserve bank froze R3 – R4 billion of Markus Jooste’s assets in December 2022.
4. There were high profile arrests at Transnet and Eskom in December 2022.
5. The Gupta’s got arrested in the UAE, are still in detention and are awaiting a court date for their extradition.
6. Two provinces returned unspent budget for the first time because they are too scared to steal it.
7. Our Reserve bank governor (Lesetja Kganyago) won the title of best reserve bank governor in the world in 2018.
8. Our currency held up very well compared to EURO; POUND and the YEN. If we performed in line with the YEN we would be trading at close to R20.00 to USD1.00
9. The JSE has held up very well compared to other emerging markets and developed markets.
10. Standard & Poors upgraded its outlook on S.A. from stable to positive in November 2022.
11. We escaped a recession despite, floods, riots and the collapsing infrastructure.
12. 70% of the ANC National Executive Committee is in the Ramaphosa camp and only 10% in the RET camp – Should see improved policy certainty which is good for foreign direct investment, employment and the markets.
13. The reopening of China’s economy should be good for S.A. and the Rand.
14. Inflation is S.A. peaked some time ago.
15. Energy Reform announced by government last year is the most consequential structural reform I have seen in South Africa apart from the shift to a democratic society.
16. Why are we different to other emerging markets?
a. Strength of key institutions like the judiciary and the reserve bank.
b. Press freedom.
c. South Africa is the 24th largest country geographically, has the 25th largest population, the 33rd largest economy by GDP, the 30th largest by purchasing power parity (PPP) and ranks 19th in terms of foreign debt (Economist Pocket World 2020 – comparing 190 countries).
17. South Africa is the only African country that is a member of the G20.
18. Since the 1940’s, South African golfers have won more golf majors than any other nation, apart from the United States.
19. South Africa houses one of the three largest telescopes in the world at Sutherland in the Karoo.
20. The Economist records the JSE the 19th largest Bourse globally at US$865b. NYSE # 1 at $20 679b; Japan 3rd at $5 297b; London SE 7th at $3 638b; Australia 16th at $1 236b
21. SA’s Services Output ranks 33rd at US$215 billion; USA 1st at $14,400b; China 2nd at $6,300b; Japan 3rd at $3,400b, UK 5th at $1,860b.
22. SA Gold production ranked 7th largest at 137 tonnes; China 1st at 420; Australia 2nd at 292; Russia 3rd at 270; USA 4th at 236.
23. SA Platinum production ranked 1st at 143 tonnes; Russia 2nd at 21; Zimbabwe 3rd at 14.Source:Economist
South Africans have a lot to be proud of and we only need to get a few things right and the lives of millions of South Africans could change quickly, and for the better.
E&OE
