The 2023/24 national budget delivered by Finance Minister Enoch Godongwana has been met with a favourable initial response by international capital markets.
In the immediate aftermath of the budget speech, the rand gained some lost ground and the country’s long-term bonds shed 10 basis points – nothing spectacular, but certainly a movement in the right direction.
Incentives for renewable energy
Arguably the most important announcement from a business perspective was the tax incentive for renewable energy installations, including solar and wind. Businesses will be able to reduce their taxable income by 125 per cent of the cost of an investment in renewables. It will be available for two years in order to stimulate investment in the short term. Importantly, there will be no threshold on the size of the projects that qualify, which promises to accelerate the transition to green energy and relieve pressure on the national grid.
The strain on the country’s electricity supply will also be eased through a new tax incentive for individuals to install rooftop solar panels. The scheme will kick in on 1 March 2023 and will allow individual households to claim a rebate of 25 per cent of the cost of the panels, up to a maximum of R15 000. The incentive will be available for one year and individuals will be allowed to reduce their tax liability in the 2023/24 tax year.
Changes to the Bounce Back Loan Guarantee Scheme are also proposed to incentivise investment in renewable energy, especially rooftop solar, in order to address energy-related constraints experienced by small and medium enterprises.
Over the past two years, a fundamental change has occurred in the ability of National Treasury and the SA Revenue Services to predict the outcomes of government’s revenues and expenditures, which has assisted the return to a more stable fiscal situation.
During the first year of the Covid pandemic, taxation revenues took a hefty knock as a direct result of a brief, but nasty recession. Since then, however, several sectors of the economy have recovered to higher output levels than before the pandemic.
Combined with a large measure of fiscal discipline, especially with regard to the public wage bill and two successive years of large tax revenue overruns, the consolidated fiscal debt declined to 4.2% in 2022/23, with a further decline to 3.2% being projected over the next three fiscal years.
Tax relief of R13 billion
With another huge tax revenue bonus in the fiscal purse, it was not surprising that a number of noteworthy measures were announced to provide some relief to taxpayers, including the following:
The transfer duty table is to be adjusted, allowing properties below R1.1 million to avoid any transfer duty payments.
The personal income tax brackets will be fully adjusted for inflation, lifting the tax-free threshold from R91 250 to R95 750
Medical tax credits will also be increased by inflation
The retirement tax tables for lump sums are to be adjusted upwards, leading to a new tax-free amount of R550,000 that can be withdrawn at retirement
No increase in the Road Accident Fund levy
The research and development tax incentive will be refined to make it simpler and more effective and is to be extended for 10 years
In an attempt to strengthen the state’s capacity to expand infrastructure delivery and to secure private sector capital, a number of initiatives have been announced to leverage private sector resources in the expansion of public infrastructure, including the following:
Funding the development of a continuous, investible and transparent pipeline of projects and programmes
Fast tracking the implementation of the recommendations contained in the Public Private Partnerships (PPP) regulatory review framework
Pilot the implementation of conditional grant pledging that was enabled during the October mini-budget. This is aimed at ensuring that the rollout of infrastructure is not constrained by the availability of funds in any particular year, if the capacity to enhance delivery exists
Assistance for crime prevention
In commenting on the unacceptable level of criminality in the country, particularly at construction sites and in reference to the perpetrators of state capture, Mr Godongwana announced that the South African Police Service would receive R7.8 billion to appoint 5,000 police trainees per year.
Government’s commitment to follow up on the state capture proceedings is reflected in the announcement that the National Prosecuting Authority is to receive R1.3 billion to support the implementation of the recommendations of the State Capture Commission. The Financial Intelligence Centre is allocated an additional R265.3 million to tackle organised and financial crime, whilst the Special Investigating Unit is allocated R100 million to initiate civil litigation in the special tribunal, flowing from proclamations linked to the recommendations of the State Capture Commission.
Although government has absorbed a substantial portion of Eskom’s debt, this move has already been incorporated in the ratings reviews by international credit rating agencies, which effectively means that it is not credit rating negative.
Economists have largely posted positive comments on the budget, with a general view that the budget provided what markets were looking for. The onus now rests on government to move swiftly with further macroeconomic reforms, especially with regard to deregulation and full or partial privatisation of the country’s logistics network. Beyond the task of reducing and ultimately eliminating electricity rationing lies enormous challenges to build more roads, repair the existing road and rail network and improve the functionality of the country’s harbours.