Budget questions remain

Evan Pickworth Business Day Law & Tax Editor

SA’snational 2022/ 2023 budget did not rocktoo many boats, tickedmany boxes ontax relief and focusedon gettingrunaway debt under control.

Thejury is,however,well andtruly outon whetherit goes far enoughin ensuring Eskom andthe numerous government departments involved inthe energymix cannavigate SAout ofthe electricity crisis.Taking on Eskom debt withfairly minimal restrictionsmay fall woefully short of what is needed tokickstart change on the ground.

The debt-reliefarrangementcovers R254bnor60% of Eskom’s debtand will be disbursed overthe nextthree years. Someof theconditions of the debt relief restricts Eskom’s capitalexpenditure to transmissionand distributionand placesamoratorium on new borrowing.

Instead, Eskom, the National Treasuryand the department ofpublic enter- prises willdesign amechanism toallow “extensive private participation” in the building ofnew transmission infrastructure. Scantdetails on thatparticipation were available,butit seemsastep inthe rightdirection iftaken seriously.

WHILE THE ESKOM DEBT RELIEF PACKAGE IS WELCOME, THE CONDITIONS COULD HAVE BEEN MORE DEMANDING

Due to theEskom debt relief, government debt will stabilise at a higher level of 73.6% of GDPin 2025/2026. This is, however, three years later thananticipated inthe 2022 medium-termbudget policy statement.

Partner atPKF Octagon,

Ziyaad Moosa, says: “In short, theyare takingdebtoff Eskom’s balance sheet and this impacts our country’ s ratio ofgovernment debtto GDP. Thechallenge nowis whether there is enough politicalwill totake someof the hard decisionsthat are needed to fixthe power utility. Together with this, we need a new CEO at Eskom to drive the business forward. It will need to be someone with enough clout to get the wheels moving,” says Moosa. Questions over necessary changes to the workforce, managing old power stations and government interference remain unanswered.

Johann Els,chief economistat OldMutualInvestment Group,says whilethe Eskom debtrelief packageis welcome, the conditions could have been more demanding. “The conditions are a littledisappointing as one would have expected there to becertain targets to be met beforepayments are made; however, with that said, the mentioned conditions are not inadequate.”

On theEskom debt takeover anddebt ratio,Els says the planto phase the Eskom debt takeover seems credible and comesat the right time. “Despite the Eskom debt transfer, the debt ratio still substantially improved from the levels recorded in October 2020,” hesays, butcautions that “ we are not out of the woods yet” There is along, hard road ahead before we reach a situationwhere wecould beratedas investmentgradeby ratings agencies,” he added.

AJM Tax founder and directorDr AlbertusMarais feels thebudget wasa relativelyunexciting event.But the fact that it is predictable is, after all, good for business.

Els says markets would have liked theemphasis on fiscalconsolidation, theprimarysurplus, theEskom debt deal, thetax giveaways forconsumers, incentivesfor renewable energy and no fuel levy increase.

Onthefuel levy,Inote withinterest commentsby Redefine PropertiesCEO AndrewKönig thatthere shouldhave beenconsideration for tax relief on diesel consumed during back-up power generation.

Why pay roughlya quarter of the diesel bill to the state when these go to the general coffersand roadaccident fund? This is not going back tosupport thoseassuming the role of the state during the energycrisis. Aslandlords and tenants who bear a large portion of thiscost, we are providinga necessaryservice,being electricity,and then paying government a tax through the costof diesel. That is not equitable and these taxes shouldnot be levied onus theway they are, he said in a note.

I couldn t agree more. Other sectorsdo getrebates for thisexpense andit would becompletely fairtoextend this to more sectors paying millionsin back-updiesel generation to keep the lights onandthe entireretailsector afloat.Ultimately alarge portionofthe costispassed on to tenants, who would in turnneedto passthatcoston to customers.

That is not a good equation aseveryone, exceptthestate whichfacilitated theenergy crisis, suffers. Welive in hope that such anincentive could becomea reality,perhapsin the mid-termbudget laterin the year. Unlikely,of course, but it is a wonderful point.

Els says markets will be concernedabout thesmall increase in the wage bill budget (only+1.6%). Therewas also nothing in budget for continuationof theCovid grantbeyond March2024 (but there are large contingency andunallocated reserves included in future budgets).

Marais says the Treasury is clearly intent on decreasing its relianceon debt,with debt service costs forthe present financialyear budgetedat about R340.5bn, up 13% comparedto thepreviousyear andmostly attributableto increasedrepayment ofborrowings whichgovernment canall themore afford.The governmentis clearlytaking itsdebt consolidationefforts seriously. That being so, debt servicecosts andsocial spending still together account for an enormous 75% of our national budget.

Tax revenues are also expected to bebolstered at higherthan inflationaryrates, with annual increases of 6.5% expected for the next three years. This canno doubt be attributedto theeverincreasing compliancedividend and aresilient and growing tax base.

The budget is, however, alsointeresting forwhatit does not say, according to Marais. Absent aredetails of where the public sector wage bill is expectedto land, for instance,aswell asanyindicationsof furthertangible exchange control reform.