The 2023 National Budget delivered much needed proposals to address loadshedding and provide relief to hard-pressed consumers, businesses and Eskom, while showing commitment to preserving a primary budget surplus. The Budget achieves a level of fiscal discipline that will satisfy investors and credit rating agencies, but efficient revenue collection will remain key.

There was a broadly positive response from fixed income and currency markets, with government pledging significant financial support to Eskom.

How much will it cost?

Government’s gross borrowing requirement will reach R555 billion by FY2025/26 due to elevated redemptions and Eskom’s announced debt relief. Cash balances are expected to be increased from R27.9 billion in the current fiscal year to R86.3 billion in the next before being drawn down to R13.5 billion by the end of the medium-term horizon.

How will it be funded?

For 2023/24 the Minister intends to collect R1.79 trillion in tax revenue, which is an increase of 5.6% over 2022/23. While this appears largely achievable, as it only implies a tax buoyancy of 1.06, there are significant risks to government’s tax collection projections over the medium term.

The tax revenue projections over the medium term seem ambitious, with gross tax revenue growth projected to average 6.5% for the three years to 2025/26, given the high base in 2022/23, as well as sluggish economic growth.

MAJOR ESKOM DEBT RELIEF PLAN ANNOUNCED

Eskom has received R263.4 billion in bailout funding since 2008/09. A debt relief package of R254 billion (R168 billion in capital and R86 billion in interest) announced, over the next three years, which addresses 60% of Eskom’s current debt. Government will directly take over R70 billion of Eskom’s loan portfolio.

The Debt Relief plan will be allocated as follows: R78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26. The debt plan is contingent on electricity tariffs which the regulator has approved. The advance of funds will be done as interest-free subordinated loans to be settled in Eskom shares rather than cash. Government’s R350 billion guarantee framework expires on 31 March 2023. Government will not guarantee new debt issued off Eskom’s balance sheet.

Conditions for the debt solution

• Eskom cannot implement remuneration adjustments that negatively affect its financial position.

• Debt relief to be used to settle debt and interest payments only, no derivative contracts to structure new debt or loans.

• Guarantee framework expires at the end of March this year with no further guarantees being granted.

• No new borrowing allowed from April 2023 until end of the debt relief period.

• Eskom cannot use sale proceeds of non-core assets for capital and operating needs.

• No greenfield generation projects allowed during the debt-relief period (maintenance and spending on adjustments for minimum emissions allowed).

To increase electricity generation, government is proposing a rooftop solar incentive for individuals to invest in solar PV. 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, to focus on the promotion of additional generation. An individual may offset their 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.

2023 BUDGET HIGHLIGHTS

The 2023 Budget includes several tax proposals designed to support businesses and individuals in coping with the higher cost of living. Tax relief of R13 billion is proposed to promote investments in green energy and to support businesses and individuals. Around 60% of government expenditure is allocated to the social wage to provide support to the most vulnerable and help alleviate poverty and hunger. Existing social grants have been increased to cushion against rising inflation.

TWO-POT RETIREMENT SYSTEM

Following extensive public consultation, the first phase of the legislative amendments to the retirement system is due to take effect on 1 March 2024. The purpose of the amendment is to enable pre-retirement access to a portion of a member’s retirement assets (this portion will be called the “savings pot”), while protecting the balance for retirement (this portion will be called the “retirement pot”). The tax deductibility of contributions will remain unchanged.

Withdrawals accruing before 1 March 2024 will still be taxed according to the pre-retirement lump sum tax table, while pre-retirement withdrawals from the savings pot will be taxed at marginal tax rates. At retirement, any remaining amounts in the savings pot will be taxed according to the retirement lump sum tax table (in other words, with the first R550 000 retirement lump sum being tax-free).