Power struggles: Budget 2023 and the inequality of solar rebates

The power crisis disproportionately affects SMMEs and poorer South Africans, according to experts who spoke at CIBA’s 2023 budget speech update.   

On Tuesday, experts discussed what one of the solutions, tax rebates for solar panel installation, means for the economy. ]

“One of the questions put forward to National Treasury, is that solar rebates do nothing for poor households who can’t afford to put in solar panels,” said Mamello Matikinca-Ngwenya, chief economist at FNB. “Their thinking is that if you incentivise businesses and households that can afford solar panels, you relieve some of the strain on the grid and that’s how it will assist lower income earners.” 

“I think this energy crisis will increase inequality in South Africa. That’s something we need to wrap our minds around. We talk about 0,4 percent GDP growth (FNB’s GDP 2023 estimate), but what does that look like? It’s higher unemployment, higher poverty, it’s inequality, it’s social unrest,” Matikinca-Ngwenya told the gathering.

“It’s a sorry state of affairs. Government is paying you not to be a customer of Eskom,” Johan Heydenrych, director of tax services at Kreston told the audience.

Heydenrych sourced a quote for a solar-powered system following the Budget announcement. The quote came to R275 000. “The solar panel component of this is R45 000. The rebate does not allow a rebate for the installation costs, inverter or batteries. “So 25 percent of that (R45 000) is not even R15 000” (the maximum allowed as a rebate). 

Heydenrych says that SMMEs he speaks to are suffering and considering closing down due to the electricity crisis and water shortages. However, not all businesses are affected in the same way. 

“One of my clients has a warehouse in Silverton (Pretoria), close to the Ford assembly plant. He doesn’t get loadshedding because Ford doesn’t get loadshedding, because the government protects Ford because Ford pays a lot of taxes. But the poor hairdresser down the road who employs six people, they get loadshedding. Does the budget help small and medium enterprises? No, it doesn’t because the hairdresser can’t afford to install solar panels.”

“If we look at the sectoral impact of loadshedding. We expect the primary sector, mining and agriculture to contract,” says Matikinca-Ngwenya. We’ve seen many farmers saying because irrigation is such a critical part of business, when there is loadshedding, it affects how they operate.”

“Your secondary and tertiary sectors are less impacted. Some of these businesses have already equipped themselves to be able to carry on. Shoprite, for instance, has indicated they’ve spent billions on diesel so they can continue to operate. We spoke to manufacturers who are building the capacity to weather the storm. 

But at some point, we’ll see this passed on to consumers.” 

A potential spark for investment?

MEC for finance in Gauteng, Jacob Mamabolo, was more upbeat about the tax rebates for solar panels. “This might have a positive impact on the construction sector,” said Mambolo. 

Regarding the broader transition to green energy, Mambabolo believes localisation is core. “Are we going to industrialise or are we going to rely on the container economy, which is not going to create jobs ?“

“We expect an ongoing replacement cycle from an investment point of view with energy-related investments,” says Matikinca-Ngwenya. However, this is not at a rate high enough to generate the kind of growth South Africa needs. 

“We’ve seen SOEs and private sector companies not investing in the South Africa growth story,” says Matikinca-Ngwenya. “They’ve not utilised their balance sheets to invest. The reasons are quite obvious. The environment is not favourable. 

Matikinca-Ngwenya lists private sector participation as the most critical risk in her budget analysis. “If they don’t use the incentives in the budget and play a role as energy producers, that’s still a question mark. As a bank, we are seeing activity, even before the budget, with more and more entities who have the financial power to put in solar panels participating. I guess we will see if that momentum will be maintained.”

Pierre Badenhorst from Sage has also seen an uptick in activity. “We’ve seen a massive increase in the amount of accounting software units that we’re selling that speaks to the smaller segment. Where people are starting a sideline business to try get enough money to buy solar or implement a bit of a loadshedding solution. You can see them growing into smaller businesses, where they’re getting a second person onto the system.”

“As accountants, we win if the economy grows and we win if the economy contracts,” says Nicolaas van Wyk, CEO of CIBA. “When it contracts, Sars clamps down, and they use their verification powers a lot more, something we’re acutely aware of, and people need help with their compliance.”

Disclosure note: The Budget Speech Update is a CIBA event, sponsored by SAGE. CIBA is also the owner of Accounting Weekly.