The government will provide Eskom with debt relief of R254bn over the next three years and will take over up to R70bn of the utility’s debt portfolio in 2025/2026.
One of the conditions imposed by the Treasury on the relief is that Eskom concessions all its coal-fired power stations after they have been resuscitated as recommended by an international consortium.
According to the Budget Review tabled in parliament on Wednesday by the Treasury, the extra debt burden on the fiscus will delay debt stabilisation, with gross loan debt to GDP growing from the projected 72.2% in 2023/2024 to 73.6% in 2025/2026 compared with the projected 70.8% and 70%, respectively, provided in October’s medium-term budget policy statement (MTBPS).
The aim of the debt relief — which will take the form of a loan — is to strengthen Eskom’s balance sheet, which is burdened with R423bn in debt, and allow it to restructure and undertake the investment and maintenance needed to lessen the load-shedding crippling the economy.
The relief will cover about R168bn in capital repayments and R86bn in interest as they fall due and can be used for this purpose. Eskom will get advances of R78bn in 2023/2024, R66bn in 2024/2025 and R40bn in 2025/2026.
Despite this extra burden, the Budget Review paints a benign picture of the state’s finances over the next three years, when the consolidated budget deficit is expected to decline from 4% in 2023/2024 to 3.2% in 2025/2026, much in line with the MTBPS projections. The consolidated budget deficit for 2022/2023 improves from the MTBPS figure of 4.9%-4.2%.
The Treasury will maintain its policy of fiscal restraint.
A major achievement is the primary budget surplus in 2022/2023 — mainly due to higher revenue and underspending — which is projected to grow over the next three years to 1.7% of GDP in 2025/2026. A primary budget surplus is when revenue exceeds non-interest expenditure and is sign of budgetary health.
The economy is forecast to grow by 2.5% in 2022, 0.9% in 2023 (down from the 1.4% MTBPS forecast), 1.5% in 2024 and 1.8% in 2025.
No tax increases are proposed in order not to harm the economy, though the personal income tax brackets have been fully adjusted for inflation. If this had not been done, the government would have garnered R15.7bn in additional tax. Alcohol and tobacco excise duties have been increased in line with inflation.
A rooftop solar tax incentive for individuals will cost the government R4bn while the expansion of the 12B corporate tax incentive will cost R5bn. No adjustments will be made to the fuel levy at a cost to the fiscus of R4bn, making a total of R13bn in tax relief.
No provision has been made in the budget for a basic income grant but the Covid-19 social relief of distress (SRD) grant, which has been extended to March 2024 (at a cost of R36bn in 2023/2024) and all other social grants will increase by inflation at a cost of R30bn over three years. The Budget Review says the future of the SRD “remains under discussion”.
“Government will make a decision in line with its commitment to sustainable public finances. Any permanent increase in expenditure, such as a new social grant, will need to be matched by permanent revenue increases or spending reductions elsewhere,” the review said.
A contingency reserve of R15bn is allocated over the next three years and provision made for a very large unallocated reserve of R80bn (R35.7bn in 2024/2025 and R44.5bn in 2025/2026) for future new programmes, including the possible extension of the SRD grant in the outer years.
Gross tax revenue of R1.69-trillion is projected for 2022/2023, R93.2bn higher than the figure projected in the 2022/2023 budget. Part of this higher-than-expected revenue will be used to reduce debt. Revenue of R1.787-trillion is expected for 2023/2024. The tax to GDP ratio rises from 25.4% to 25.7% over the next three years.
The Treasury has budgeted for an average annual increase of 3.3% in the public sector wage bill over the next three years mainly due to the carry-through costs (R45.6bn) of the 2022/2023 wage increase. It acknowledges that this is a risk to the fiscal framework as public sector trade unions have resisted below-inflation wage hikes. Other risks are low or no economic growth, rising borrowing costs and the replacement of the social relief of distress grant with an unaffordable alternative.
On the spending front, the Treasury expects consolidated non-interest expenditure will contract at an annual average of 1% in real terms because there will no longer be transfers to Eskom. Edgar Sishi, the head of the Treasury’s budget office, emphasised that there will be no cuts to departmental budgets. Consolidated government spending will grow at an average annual rate of 4.5% to R2.48-trillion in 2025/2026.
The 2023 budget allocates additional funding of R227bn over the next three years, which will be used for the SRD grant, improvement in infrastructure and to support safety and security, education and health services.
An allocation of R14bn is made over the medium term to fight crime and corruption. The police budget is increased by R7.8bn and the budget of the National Prosecuting Authority (NPA) over the period will rise by R1.3bn.
SA Revenue Service (Sars) is allocated additional funding of R1.5bn to strengthen tax administration and collection and combat the illicit economy. An amount of R2bn is allocated for the refurbishment of parliamentary buildings destroyed by fire.
Further proposed bailouts of R1bn to SAA to assist with the business rescue process and R2.4bn to the SA Post Office to implement its turnaround plan.
The public sector is projected to spend R903bn on infrastructure in the medium term, with R448bn of this to be spent by state-owned companies, public entities and through public-private partnerships.
The public sector borrowing requirement climbs from R385.9bn (5.5% of GDP) in 2023/2024 to R396.3bn (5%) in 2025/2026. Debt service costs as a percent of main budget revenue will increase from 18% in 2022/2023 to 19.8% in 2025/2026 and is expected to average R366.8bn over the medium term.
The rand pared losses in the hour leading up to the speech after being 0.7% weaker at R18.38/$ earlier in the day. Immediately before the minister began to speak, it was down 0.18% at R18.25/$. The moment Godongwana started his presentation, the local currency reversed course and by 2.15pm it was 0.3% firmer at R18.19/$.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.