The winners and losers from South Africa’s budget

[Nat Quinn]

South African finance minister Enoch Godongwana collected more money than he expected this year because of a jump in commodity prices, which led to better tax collections.

He plans to use some of that extra revenue to reduce government debt and bail out three state companies crucial for the economy. At the same time, the National Treasury remained firm on limiting increases for public-sector workers and will proceed with its carbon-tax plans from next year.

Here’s a list of the winners and losers in Wednesday’s medium-term budget announcement.

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Winners:

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State-Owned Companies: Godongwana allocated R30 billion ($1.65 billion) to state-owned companies that operate the nation’s railways and ports, build and maintain national roads and manufacture weapons. The move is a change from recent years, when the Treasury stopped bailing out government entities whose financials are in a shambles after years of alleged graft and mismanagement.

While the biggest portion of the money will go to the South African National Roads Agency, the R5.8 billion allocation to Transnet SOC will likely have the most immediate economic benefit, helping to rebuild the rail operator’s infrastructure that was damaged in floods in April, and increasing locomotive capacity that should boost exports of coal and other bulk commodities.

Welfare Recipients: The government will extend by a year its social relief distress grant of 350 rand a month that it started paying to low-income households during the Covid-19 pandemic.

That means the 7.4 million people who currently receive the money will continue benefiting until March 2024. Discussions on the future of the grant are ongoing and any permanent extension or replacement will require long-term increases in revenue, reductions in other spending or a combination of the two, Godongwana said.

Taxpayers: Tax changes are announced in the main budget in February, but the medium-term budget policy statement usually gives guidance on what the government is planning. In Wednesday’s budget document, the Treasury said the main budget fiscal framework assumes no new revenue measures from next year onward.

That suggests new taxes or larger-than-normal adjustments to levies are unlikely.

Law Enforcement: The Treasury will add to the allocations for law-enforcement agencies such as the National Prosecuting Authority, the Special Investigative Unit and the Financial Intelligence Centre in the 2023 budget. That will help with the implementation of recommendations made by a judicial commission that probed state graft.

The South African Revenue Service will also get more money, and that could boost the state’s coffers in the long run. Improvements in efficiencies at SARS is one of the main reasons for a projected permanent increase in government revenue.

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Losers:

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Eskom Investors: Investors who expected final details on how the government will tackle Eskom Holding’s debt will be disappointed. Wednesday’s medium-term budget gave little details about the government’s plans. Godongwana said the relief will be between one-third and two-thirds of the utility’s current debt of about R400 billion.

Strict conditions will be attached to the debt relief, he said. Further details will be provided in the 2023 budget.

State Workers: Godongwana stuck to the government’s stance that state workers will only get a 3% salary increase this year. That’s even as some labor unions seek raises of as much as 10%. They’re planning to go on strike from next week to press their demands.

The Treasury also curbed expectations for the next financial year, saying increases will need to remain within the available fiscal resources to ensure they don’t compromise other spending priorities.

Big Emitters: Carbon tax rates will start increasing significantly from next year onward, in line with what the Treasury announced in February 2022. That means companies such as Sasol and Eskom will have to pay more. The planned increase comes despite pleas from organized business that the government reconsider some of the rates and stagger the increases.

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