1. Government to service a large chunk of Eskom’s debt

Eskom’s debt stands at R423 billion. The government will now assist with a significant chunk. This includes R168 billion in capital and R86 billion in interest obligations.

Government will transfer R78 billion to Eskom in 2023. This money may only be used to pay off loans and interest. R66 billion will be paid in 2024 and R44 billion in 2025. In 2025, the government will directly acquire R70 of Eskom’s debt.

R66 billion of this funding was already provided for in October’s MTBPS. The rest, government will have to borrow.

The Budget Review 2023 documents explain that the government already guarantees R350 billion of Eskom’s debt. This debt is at risk of default, which raises the risk profile and government borrowing costs.

It hopes this debt relief will allow Eskom to invest in maintenance and energy transmission.

2. There are strings attached to Eskom debt assistance

There are seven conditions attached. Highlights include:

Limitations on generation spending

Eskom is limited to capital expenditure related to transmission and distribution. The Budget documents state, “The only capital expenditure that may be undertaken for generation relates to minimum emissions standards, flue-gas desulfurisation and required maintenance. No other greenfield generation projects will be allowed during the debt-relief period.”

No new borrowing

Unless the Finance Minister approves, Eskom may not borrow more money until the end of the debt relief period.

Little scope for salary increases

Budget 2023 states that any salary increases may not affect its overall financial position and sustainability,” according to the budget documents.

3. Tax revenue exceeded expectations

The government now expects to collect R 1.692 trillion in taxes for 2022. This is R10 billion more than was estimated in October’s MTBPS and R94 billion more than predicted in Feb 2022.

Government plans on using 57 percent of the extra revenue to reduce the budget deficit. Stating, “This will help to prevent a dramatic increase in debt and debt-service costs or the need for harmful spending cuts, should the revenue projections not materialise.”

4. Taxes won’t increase (but they have already, you might not have realised it)

No personal income tax increases, no VAT or companies tax increase, even cigarettes and booze consumers will get a break. Tax brackets will be adjusted for inflation, which Treasury estimates at 4,9 percent.

Inflation came in higher in 2022 than was estimated last February when brackets were last adjusted upwards by inflation – so bracket creep occurred last year.

The fuel and Road Accident Fund levies will not increase.

5. R9 billion in tax incentives for solar panels

The budget includes R9 billion to encourage households and businesses to invest in renewable energy.

R4 billion of this is for households. Budget documents state, “Individuals will be able to receive a tax rebate to the value of 25 percent of the cost of any new and unused solar PV panels. To qualify, the solar panels must be purchased and installed at a private residence, and a certificate of compliance for the installation must be issued from 1 March 2023 to 29 February 2024,”

The rebate does not cover inverters or batteries.

“It can be used to offset the individual’s personal income tax liability for the 2023/24 tax year up to a maximum of R15 000 per individual. For example, an individual who purchases 10 solar panels at a cost of R40 000 can reduce their personal income tax liability for the 2023/24 tax year by R10 000.”

Companies are also being encouraged to spend more due to alterations to the current incentive.

The Budget documents state, “Under the expanded incentive, businesses will be able to claim a 125 percent deduction in the first year for all renewable energy projects with no thresholds on generation capacity. The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025. For a business with positive taxable income, the deduction will reduce its tax liability.”

6. An austerity budget?

Compared to the 2022 Budget Review, government expects to spend R77 billion more. However, it also expects this to balance out against underspending and other adjustments, resulting in only R23,3 billion more being spent.

Government is only due to spend 1 percent in real terms over the medium term. Treasury officials point out this is largely due to technical issues, and department spending largely keeps up with inflation.

7. Government worker strikes could throw alter spending plans

The government’s spending forecasts for the public sector wage bill is based on last year’s agreement and is unlikely to please unions. They’re due to hand in a seven-day notice of strike to the government today.

Treasury officials describe the situation as fluid and indicate that it may be necessary to adjust how much the government spends on public wages.

8. Debt stabilisation delayed by another crisis

Government’s plans to stablise the debt-to-GDP ratio have again been derailed due to it assisting Eskom with its debt.

Budget Review 2023 states, “Gross government debt is now projected to stabilise three years later and at a higher level (73.6 percent of GDP) than projected in the 2022 MTBPS.”

This is not the first time that a crisis has delayed debt stabilisation. The Budget Review notes, “Over the past several years, government’s efforts to narrow the deficit and stabilise debt have been interrupted by several shocks that required urgent fiscal intervention, including the COVID-19 pandemic and state-owned company failures.”

9. Debt service costs continue to eat up spending

The amount of money that government spends servicing debt continues to grow, with no end in sight during the medium term. It is expected to peak in 2025/26 when R19,8 of every R100 of tax revenue will be spend servicing debt.

10. Growth – what growth?

Economic growth was better than expected last year, but medium-term growth prospects look bleak. The Budget has revised down average economic growth in the medium term from 1.4 percent to 1.6 percent.

The electricity crisis and the effect of rising inflation on households are listed as one reason, as well as underinvestment and disruptions in the rail system.

11. Transnet's train crash is happening

In the last five years, a quarter of long distance freight volumes have shifted from rail to roads. The budget highlights freight and rail as areas where the most urgent reforms are needed, describing the current situation as a brake on economic activity.