BUDGET 2023: an overview

With government set to spend R7 trillion over the next three years — R2.6 trillion towards social grants — the National Treasury has flagged low economic growth, rising borrowing costs, the Covid-19 R350 grant and unaffordable public sector wage settlements as risks to the fiscal outlook.

Having collected R93.7bn more than expected, the Treasury will use 57% of the money to reduce borrowing requirements instead of spending on new items. This will see the budget deficit narrow down to 3.2% in the outer years of 2025/26. However, a commitment to absorb R254bn of Eskom debt, high interest repayments and other spending commitments will see the country’s debt peak at 73.6% of GDP, or R5.8 trillion, by 2025/26.

The Treasury has once again flagged the high cost of servicing this debt, which increases as a percentage of budget revenue from 18% in 2022/23 to 19.8% in 2025/26, averaging at R366.8bn a year. Over the next three years SA will spend a staggering R1.1 trillion on interest payments to bondholders and other lenders.

In its Budget Review, the Treasury highlighted the sensitivity of debt and debt-servicing costs to interest rates, inflation and exchange rate shocks.

“A one percentage point increase in inflation and interest rates, together with a R1 depreciation of the rand against the dollar, results in a R54.9bn increase in gross loan debt and a R6.2bn increase in debt-servicing costs.”

It has allocated an additional R227bn over the next three years to mainly pay the Covid-19 social relief grant, safe and security, education, health services and investments in local government and provincial infrastructure.

The economy briefly bounced back after the end of the Covid-19 lockdowns to record 2.5% growth, but the outlook has deteriorated, and growth has been revised down to 1.4% between 2023 and 2025 mainly as a result of load-shedding and the war in Ukraine.

Having collected tax revenue of R1.9 trillion, consolidated expenditure for 2023/24 is R2.2 trillion. At least 24% — or R457bn — goes towards education and related programmes. R378.5bn will be spent on myriad social grants, R259.2bn on health and another R259.7bn directed to community development projects such as human settlements, electrification programmes and investments in public transport.

The police services, defence, courts, state security and home affairs receive a combined R227.3bn. A further R237.6bn is allocated to efforts aimed at economic development.

The Treasury has also announced R13bn in tax relief, with R9bn going to businesses and households for investment in renewable energy.

Businesses will receive tax deductions for investment in wind, solar, hydropower, biomass and other renewable energy projects they undertake.

Households that purchase rooftop solar panels will be credited with a tax rebate of 25% of the cost of installing new and unused solar panels — capped at a maximum of R15,000.

Government also announced other tax breaks, including a zero increase in the fuel and Road Accident Fund (RAF) levies for this year.

Producers of foodstuffs will be added to other manufacturers already enjoying refunds on the RAF levy used for diesel.

Properties below R1.1m will be exempt from transfer duty.

However, the minister did warn he might increase taxes if he is forced to budget for an affordable basic income grant.

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