Finance Minister Enoch Godongwana faces a difficult task when he delivers the 2023 Budget on Wednesday. He must fill the void left by President Cyril Ramaphosa, who failed to explain Eskom’s debt as well as the government’s plans to support economic growth and job creation during his State of the Union address. The economic research group, Oxford Economics Africa, said that we already know that the social assistance from hardship (SRD) of R350 will continue, but with the fiscal cliff, fiscal consolidation remains the main requirement for financial stability and ensuring debt sustainability. With this in…
Finance Minister Enoch Godongwana faces a difficult task when he delivers the 2023 Budget on Wednesday. He must fill the void left by President Cyril Ramaphosa, who failed to explain Eskom’s debt as well as the government’s plans to support economic growth and job creation during his State of the Union speech.
The economic research group, Oxford Economics Africa, said that we already know that the social assistance from hardship (SRD) of R350 will continue, but with the fiscal cliff, fiscal consolidation remains the main requirement for financial stability and ensuring debt sustainability.
With this in mind, a tax increase may be on the way.
“Although the government allowed R5.2 billion in tax relief during last year’s budget, announcing a higher personal income tax will be difficult to justify, raising the rate of value added tax (VAT) may provide the fastest and most direct support to the fiscus although it will be a step that does not popular.”
The group said Godongwana has so far shown pragmatism, but he is also a ruling ANC member and bound by overall policy.
Prof. Andre Roux, economist at Stellenbosch Business School, said when the minister presented the budget speech a year ago the socio-political-economic environment was not friendly. This year is even worse, he said.
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What different groups will hope for
He said that the corporate sector and investors will hope to reduce the significant budget deficit, a coherent program of selling or privatizing dysfunctional State-Owned Enterprises (BUMN), together with the consistency and implementation of policies, institutional competence and integrity, further easing of the tax burden company, and the back is open.
“SMEs will look forward to tax breaks, relaxation of labor laws, reduction of red tape and ultimately burden reduction, while middle-income households will look for lower personal income tax rates, credible and visible anti-corruption plans. action, a less volatile exchange rate and ultimately reduce the burden.
Roux said both organized labor and the unemployed would hope for increased job opportunities, a higher minimum wage and ultimately reduced burdens. Civil servants will expect a wage increase linked to inflation, an end to layoffs and an end to the reduction of burdens.
“Less advantaged members of society will expect additional social funds, reduced VAT, increased education and health costs, cheaper and more reliable transport and finally reduced burdens.”
Jeff Ryan, MD of AWCape, Platinum Sage’s business partner for HR, payroll and financial solutions, said it is unlikely that income tax will increase as it will likely cause more brain drain than the tax base has been reduced.
“Therefore, the government will look for ways to increase revenue through indirect taxes, such as fuel levies or sin taxes on alcohol and tobacco products, to finance critical spending initiatives. Overall, I hope the government does not prioritize revenue collection over the welfare of citizens and avoid VAT to fight the current energy crisis.
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Consumers are struggling to balance their budgets
Zandile Makhoba, an economist at Liberty, said Godongwana understands that South Africans are struggling with household finances and he will be sensitive to more pressure on consumers. “However, in terms of providing consumer relief, they have no room to maneuver because maximizing revenue collection is critical in the current situation.”
Maarten Ackerman, chief economist of Citadel and George Herman, chief investment officer of Citadel, said Godongwana must allocate the money carefully, placing it where it will make the greatest impact in transforming the economy around to regain the confidence of South Africa.
“We are facing a zero-growth economy, as the South African Reserve Bank has recently calculated the 2023 economic growth estimate to be only 0.3%. In this climate, it is important to develop a budget that will create policy certainty by providing clear direction and reflecting specific targets and attainable,” Herman said.
Eskom has about R400 billion in debt and although there have been talks of debt restructuring over the past few years, nothing has been concrete yet. Herman said that now we need to know about Eskom’s debt and how to solve the ongoing load problem.
Herman and Ackerman say businesses want an effective budget that balances government financial constraints with social responsibility, while also empowering the private sector to participate on a larger scale.
Frank Blackmore, lead economist at KPMG South Africa, wants to see how funding will be allocated to implement the various initiatives mentioned by the president, such as R1.5 trillion for a just transition and renewable energy projects.
“Thus, one would expect an increase in the allocation of funding to capital expenditure projects in a budget where the proportion of expenditure currently remains stable at around 4% of total expenditure.”
Due to the reduction in the potential of tax revenues to be collected in the next few years, the emphasis should be on reducing government costs and the efficient allocation of these revenues to where they will be used efficiently to meet public needs. South Africans, he said.
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Low GDP, less budget?
Tertia Jacobs, treasury economist at Investec, said the National Treasury’s forecast of a 4.9% GDP deficit could be lower this year due to lower spending and corporate income tax receipts ahead of target. They expect a lower deficit of 4.5% of GDP.
He said the main issue to watch out for in this budget is the e-toll and how Gauteng can finance its share of the R13 billion to be paid to Sanral, determined to start promising to make the country more attractive to do business and get public. -private-partnerships moving to accelerate infrastructure development.
Jacobs added that the current slowdown is caused by the escalation of rising burdens, which has a visible impact on many sectors such as agriculture, manufacturing and trade.
Dr. Elna Moolman, head: macroeconomic, fixed income and currency research at Standard Bank, does not expect tax or increased spending on social grants in the medium term. “We consider the planned debt relief for Eskom to require five annual transfers of R50 billion each as Eskom needs to increase its use of open cycle gas turbines to reduce load.”