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Budget 2023 – Temptation resisted, Eskom mettle grasped. It could have been much worse.
By Alec Hogg*
The first Budget speech I reported on was in the early 1980s when a man known globally as the brother-in-law of Rhodesian PM Ian Smith dropped the GST bomb on SA. Owen Horwood, one of the few English-speaking cabinet ministers in the Apartheid regime, promised the country the new general sales tax would stay at 2%.
We know how that worked out. By 1991 an already escalating GST had evolved into VAT – and was it not for trade union threats, there’s little doubt the easily captured tax would be quite a bit higher than the current 15%. Such is the way of taxes. And the politicians who administer them.
With scepticism acquired over decades, I approached today’s National Budget with a sense of apprehension. The ANC is losing popularity everywhere you look. And with the previously unthinkable looming for it in next year’s National Election, it was odds-on that at least some “goodies” would be disbursed to a restive electorate.
On top of which, the revenue overrun of almost R100bn from what was Budgeted a year ago provided plenty of scope for some vote-grabbing by a political party that needs it. Instead, nothing. Not even the standard bastardizing of tax table inflation adjustments as a “give back”.
Whether the admirable team at National Treasury, finmin Enoch Godongwana, or his boss Cyril Ramaphosa made the final decision matters not. What does matter is that fiscal prudence prevailed over the temptation to apply the levers of national power to benefit the ANC. Something so rare for the liberation party that it’s the untold headline of Budget 2023.
The topic that will interest most observers is how the government is attacking the power outage crisis. The ANC’s socialist fantasy of a ‘Capable Development State’ lies in the dumpster of “cutesy-called load-shedding” (to quote one globetrotting Richard Quest).
Although Ramaphosa administered the last rites on Eskom’s monopoly a year ago, this Budget ensured its coffin is well and truly six feet under. The ridiculous 1MW cap on private power production, raised to 100MW in June 2021, has now been abolished. Much more than that.
From the beginning of next month, any company which builds an electricity-producing plant of any size can immediately write back 125% of the investment against its taxable income. Plus, the State will pay 25% of the cost of solar panels installed by any of its citizens – although, in this case, there is a R15,000 rebate limit (so panels costing more than R60 000 are for your account).
Such is the desperation for redemption by the political party correctly blamed for creating a situation where its people and businesses are forced to cope with no electricity 10 hours out of every 24. And the threat of it getting even worse.
In years to come, when looking back on Budget 2023, it’s likely to be remembered as “The Eskom Budget”. It is the year when National Treasury admitted that even after R260bn in bail-outs, SA’s former electricity monopoly needs another R250bn more. So at the risk of throwing good money after bad, that’s what it’s getting.
That assumption of over half Eskom’s debt by taxpayers will send national debt – and the interest cost of serving it – into a new record channel of over 70% to GDP. Godongwana also told us during the lockup press conference that R56bn in debt owed by municipalities to Eskom needs to be addressed.
Using the example of Maluti-a-Phofung’s (Harrismith) R7bn debt to Eskom, he explained that there is no universe where this relatively small municipality will ever be able to repay what it owes. It’s a similar case with 42 other municipalities in financial ICU, which between them owe 80% of what Eskom’s accounts erroneously suggest is recoverable.
So, just as with Eskom itself, Godongwana is grasping that nettle. And says the municipalities must be rehabilitated and turned into functional, electricity-paying entities “whether that’s through prepaid meters or whatever….” At last, no more kicking the can down the road.
My takeaway is the reminder of Margaret Thatcher’s wonderfully referenced TINA situation…There Is No Alternative. Eskom was under serious threat of defaulting on its debt. With knock-on consequences on the overall cost of finance, that is far worse than anyone imagines.
Similarly on electricity supply. And Transnet. And the threat of Greylisting. And, and, and…
SA is in a deep hole. It could always have gotten worse. With an economic ignoramus like Zuma or, heaven help us, Julius in the driving seat, it most definitely would have done. Thank heavens for small mercies. Whatever your criticism of the man, Cyril Ramaphosa is no ostrich. He knows a TINA when he sees it.
- Alec Hogg is the founder of BizNews. He attended today’s pre-Budget lockup from 6am to study Treasury’s National Budget documents before their general post-embargo release when the finance minister presented his speech to Parliament.
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Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.