The Minister of Finance, Mr Enoch Godongwana presented his National Budget Speech to the Members of the National Assembly this afternoon. The National Budget Review notes that South Africa is prioritising stable and clear policies so as to promote economic growth in the midst of an uncertain economic outlook. GDP is expected to grow by 0.9% in real terms in 2023, compared with an estimate of 1.4% at the time of the latest Medium-Term Budget Policy Statement. The National Budget Review notes that this rate of economic expansion is well below the pace required to generate significant employment growth and to support national development.
Tax rates remain unchanged
The corporate income tax rate remains unchanged at 27%. Individuals receive some relief as personal income tax brackets have been adjusted for inflation. The general fuel levy and Road Accident Fund levy remain unchanged. However, in light of the current electricity crisis, the diesel fuel levy refund will be extended to manufacturers of foodstuffs from 1 April 2023 until 31 March 2025. The VAT rate remains unchanged at 15%.
Expansion of the renewable energy tax incentive
The 2023 Budget provides tax relief amounting to R9bn to encourage households and businesses to invest in renewable energy.
The current renewable energy incentive for companies has been expanded. Companies will be able to claim a deduction of 125% of the total cost for all renewable energy projects in the first year. There will be no thresholds on generation capacity, as is the case under the current incentive. The adjusted incentive will only be available for qualifying investments brought into use for the first time between 1 March 2023 and 28 February 2025.
Individuals will be able to receive a tax rebate to the value of 25% 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 is only available for solar PV panels, and not inverters or batteries, so as to focus on the promotion of additional generation. The solar incentive can be applied to offset the individual’s personal income tax liability for the 2023/24 tax year up to a maximum of R15 000 per individual.
Tax revenue and expenditure
A strong revenue performance in 2022/23 was driven by elevated commodity prices, and a continued recovery from the pandemic among manufacturing and the financial sectors. Over the next three years, revenue is expected to grow by R351bn, reaching R2.04tn in 2025/26.
The 2023 Budget allocates additional funding totaling R227bn over the next three years. The additional funds are mainly to extend the COVID-19 social relief of distress grant until 31 March 2024, improve investment in local and provincial government infrastructure, and support safety and security, education and health services.
The 2023 Budget proposes a major debt-relief arrangement for Eskom in the amount of R254bn to address Eskom’s persistently weak financial position and enable it to conduct necessary investment and maintenance. As a consequence of the Eskom debt-relief arrangement, gross loan debt is expected to increase from R4.73tn in 2022/23 to R5.84tn in 2025/26. Debt will rise as a percentage of GDP, but is expected to stabilise at 73.6% in 2025/26. Debt-service costs will also rise to R397.1bn in 2025/26, due to rising market lending rates and Eskom debt-relief.
A further risk as identified in the National Budget Review is the public service wage bill. The budgeted expense for 2023/24 is approximately R700bn. It is uncertain whether the budgeted below inflationary increase will be accepted. As the public service wage bill comprises a third of total government spending, even a small variation from the budgeted spending could have a significant effect.
In conclusion, the National Budget Review recognises that the economy needs substantial investment to prosper. Government is striving to cut red tape, improve efficiency and encourage investment, with the focus of the 2023 Budget being to stabilise the electricity situation, which is recognised as a prerequisite for generating economic growth. Undoubtedly, cautious fiscal management and well‐considered trade‐offs were the order of the day in the Minister’s Budget Speech.
Main tax proposals
The main budget proposals for the 2023/2024 fiscal year are as follows:
- Government proposes tax relief totaling R13bn in 2023/24 to support the clean energy transition, increase the electricity supply and limit the impact of consistently high fuel prices.
- R4bn in relief is provided for individuals that install solar panels, and R5bn for companies through an expansion of the renewable energy tax incentive.
- Inflation-related adjustments to the personal income tax tables, the retirement tax tables, and transfer duties are provided.
- Excise duties on alcohol and tobacco will increase in line with expected inflation of 4.9%.
- There are no changes to the general fuel levy or the Road Accident Fund levy.
To limit the impact of the energy crisis on food prices, the diesel fuel levy refund will be extended to manufacturers of foodstuffs for a period of 2 years, from 1 April 2023 until 31 March 2025.