We welcome the Finance Minister’s budget, which was well-balanced approach, geared towards stimulating economic growth amid various challenges such as the COVID-19 pandemic, social unrest, industrial action and the re-introduction of loadshedding which has contributed to a downward revision in economic growth.
BEPA remains cautiously optimistic on the fiscal roadmap of our country. Although it was widely assumed that tax collection would exceed the budget, the key question was how the windfall would be distributed. We applaud Treasury’s view that the windfall is not a result of a stronger economy, but rather the result of a commodities price boom, and that the country would not fund permanent investment with short-term surpluses. The R182bn revenue windfall due to an early lifestage global commodities super cycle has given the Minister, Honourable Enoch Godongwana room to provide tax relief mostly to consumers. This is perhaps due to the admission that the economic recovery of South Africa in 2022 remains consumer rather than State spend led. 2022 into the near future promises the end of the pandemic, opening up economic activity. The budget seemed to be tax-focused with limited detail on several key issues the energy sector requires clear action on to spur sector growth.
The Minister has kept most taxes flat, with a much-appreciated reduction in corporate tax of 1%, moving us closer to the OECD member country average of 23%. The reduction BEPA estimates, is to free up some R3bn in savings for business to reinvest into the economy. This a nod to government’s admission that the private sector is to drive economic growth and job creation in the country. VAT is set to contribute over a third of revenue collections, with personal income tax just over 40% this year. The major concern remains the growing imbalance of social beneficiaries compared to what is an eroding tax base. South Africa now has over 45% of its budget dedicated to fund social spending programmes. This trend must be reversed with our people being put to work through expansion of public works programmes, bold public infrastructure projects and a less restrictive labour environment.
BEPA is happy to see that the windfall from the commodities boom, although unsustainable as revenue source will be allocated to the consolidation of debt. A freeze on SOE bailouts, barring a critical entities such as Eskom which has been provided R136bn for settlement of debt and R88bn for working capital over three years is welcomed. BEPA supports this decision as Eskom must rationalize its cost base, sell-off unprofitable assets which can be run better by the private sector and finally fast-track its operational unbundling announced by CEO, Andre de Ruyter to be completed by the end of 2022. Eskom would need to intensify its revenue collection efforts to increase cash flows, particularly from local municipalities which requires political support, to reduce its R400bn debt burden. Simultaneously, the utility in conjunction with the DMRE need to speed up quick-build REIPPPP Rounds to shore up security of electricity supply.
Furthermore, the rationalization of SOEs and restrictions on public servant wages is welcomed as these have been weighing heavy on fiscal levers the country can pull towards sustainability. Twenty cents of every tax rand collected is spent on servicing debt, reducing spend on much needed public infrastructure, education and health services.
Keeping flat the deduction of the fuel levy and Road Accident Fund at R6.16/litre, signals a move in the right direction by Treasury. BEPA however requests a complete review of the composition of fuel prices to better reflect local market dynamics adaptable to global price shocks such as the intensified Russia-Ukraine war which is likely to drive up at-the-pump prices of fuel in the near future. Not hiking the fuel levy will release cash in the budgets of business to invest in private generation including internal combustion generators, solar PV and battery storage. This aligns to the President’s aims of freeing up business to procure power independently.
Concern persists on the lack of clear support for shovel-ready public infrastructure projects. BEPA believes that investing in a handful of these specifically targeted at creating a base of reliable energy infrastructure which the private sector can leverage was a missed opportunity to turn the economic tide. This budget was fixed on debt reduction and increase in social welfare spend. Though these stabilize the fiscus and appease political actors, BEPA would have liked to see bolder action on spend that will drive economic growth and job creation.
Source: Nkosinathi M. Hlophe (CA) SA and Tshembhane Hlongwane (Mahlako, SED Economist) on behalf of BEPA and its Members.
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