Finance Minister Enoch Godongwana delivered his second national budget in a diverse global economic climate. The International Monetary Fund projects global economic growth to drop from 3.4% in 2022 to 2.9% in 2023.
While global inflation is anticipated to decrease to 6.6% in 2023 from 8.8% in 2022. In the case of South Africa, the reserve bank expects GDP growth to decrease from 2.5% in 2022 to 0.3% in 2023 due to record. load-shedding rate.
While inflation in 2022 and 2023 continues to register above the target band of 3% to 6% of the reserve bank, it recorded 6.9% in January 2023. Food inflation is mainly driven by exogenous factors and the risk of load shedding.
The nature of the domestic and global economic outlook requires the national treasury to prioritize country risks in a way that will strengthen economic resilience, enable recovery and create growth paths for the future.
Because of this mandate, South Africa continues to provide a macroeconomic policy framework that can support growth and is reflected through the South African Reserve Bank’s inflation targeting efforts, a flexible exchange rate and prudent fiscal policy. Government spending is projected to increase by 3.4% in fiscal year 2023-2024, reflecting fiscal discipline in a difficult climate.
Fiscal discipline and priority setting
Despite this, the national economy continues to experience severe strain and face structural problems that continue to hinder economic growth and the recovery plan outlined in the Economic Reconstruction and Recovery Plan.
One of the structural obstacles is the lack of availability and supply of electricity by Eskom. This obstacle has a negative impact on safety and security in the country, the availability of clean water, rapid damage to public infrastructure and loss of production.
According to reserve bank estimates, the economy is losing close to R1 billion per day due to the negative effects of the burden. Therefore, when issues related to safety and security, public infrastructure and the allocation of social grants among others are important areas for the budget.
The efficiency of service provision in the region is entirely dependent on the availability of reliable energy supplies to facilitate the delivery of these services. Especially for the most vulnerable.
Acknowledging the systemic nature of the energy crisis in the South African economy is limiting production and growth. Godongwana tabled the Eskom Debt Relief and Solar Panel Tax Incentives Bill to mitigate the growing risk of burden reduction. Now, R254 billion of Eskom’s debt will be taken over by the national treasury so that the energy utility can have more capacity to actively improve its performance and improve the electricity availability factor as a result.
However, addressing the risks associated with South Africa’s energy deficit is not limited to fiscal allocations in the budget. To register the money, it is necessary to strengthen the governance in the program to drive efficiency in Eskom. In addition to a broader strategic plan that can enable an energy mix that will promote the modernization of South Africa’s economy and address its socio-economic goals.
The tax proposal is minimal in this year’s budget
Actually, the biggest highlight of the budget is support to help individuals and businesses to source alternative energy sources to increase load shedding and in some cases power outages. This includes ensuring that personal income tax brackets are adjusted for inflation in order to avoid bracketing.
In the last fiscal year, the price of fuel rose to a record high. In light of that, no changes have been made to the general fuel levy and the Road Accident Fund levy, to soften the pass through effect. The main tax proposals this year have been related to the main sin tax.
Furthermore, R15 billion has been set aside in the medium term for contingent liabilities. This allocation has proven to be important in the past, although not enough, but useful when South Africa is faced with flooding events, unexpected damage to infrastructure and even offsetting the effects of cost-driven inflation due to other exogenous factors.
Debt servicing costs in the medium term will continue to be significant at an average of R366.8 billion per annum, stabilizing at 73.6% of GDP in the medium term.
Therefore, the trade-off made by cash in the 2023-2024 budget must be fully realized by ensuring that there is more effective governance. In addition, at the local government level as it extends over the medium term, the South African economy must be oriented towards increasing its productive capacity at a sustainable level to overcome high levels of unemployment and poverty.
Resilience and effective governance
The words “jobs” or “job creation” were not mentioned in this year’s budget speech. This is proof of the fact that the priority of the budget is to maintain economic stability through the protection of households and industry, so that they can recover and create a growth path for the future.
However, the delivery of the budget and related bills for approval by the parliament was not completed. Effective governance in terms of intergovernmental coordination, improvement of governance in local and provincial governments are ingredients that will have a material impact on the policy position stated in this year’s budget.
So the question is, what will the minister and the president do to make it happen? Mainly, because of the state of national disaster that is gazetted.
The effectiveness of the response to this question, will we again in the next budget and remain the challenge of the principal of this budget.
Ndumiso Hadebe is chief economist at KH Equity Partners and advises the Gauteng provincial government cabinet. He also serves on the board of The Da Vinci Business School.
The views expressed are those of the author and do not necessarily reflect official policy or position Mail & Guardians.