Budget speech ‘exceptionally important’ because ‘we have reached end of the line now’

With only one day to go to this year’s national budget speech, industry heavyweights believe National Treasury should prioritise a huge chunk of its money to embattled power utility Eskom and the energy sector.

The budget speech will take place tomorrow and comes at a time when cash-strapped South Africans are reeling from the high cost of living, low levels of savings and an ongoing electricity crisis which is stifling the country’s economic growth prospects.

Topics expected to be covered by Minister of Finance Enoch Godongwana include the stabilisation of the finances of state-owned entities, such as Eskom, the large budget deficit, tax revenues and municipal finances.

It is suspected the budget deficit may be lower than expected, and tax revenues higher than projected.

‘Exceptionally important budget speech’

Chief economist at Efficient Group Dawie Roodt said it would be interesting to see what the minister’s plans were in terms of economic growth. The Reserve Bank did not expect the economy to grow.

“This is an exceptionally important budget because we have really reached the end of the line now. We ran out of money. So let’s see what the minister thinks and what his plans are,” he said.

Godongwana faced the task of incorporating a reliable debt relief plan for Eskom as blackouts weighed on the economy, while stabilising government’s finances. Roodt said SA had yet to see how much money would be allocated to the Eskom debt.

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President Cyril Ramaphosa, in his State of the Nation Address, hinted that help was on its way from Treasury to ease Eskom’s R400-billion debt pile. And he touched on public-private partnerships, reforms, social grants and debt sustainability.

Last October, Godongwana said the state would absorb a third to two-thirds of the R400 billion owed by Eskom and he looks likely to outline some of the transfer terms in this budget speech. Roodt said he believed Godongwana would take over all the debt.

“Eskom requires restructuring which must include getting rid of many people currently working, or supposed to be working there because there are too many people and they pay too much,” he said.

“Eskom must be restructured but, politically, that is very difficult to do.”

Weak economic growth

Roodt said weak economic growth and high levels of unemployment and poverty in South Africa were critical components of the budget speech – and it was also important to note that national elections were on the horizon. Politicians did not want to make difficult political decisions at this time.

Several opinion polls showed the ANC risked losing its national majority in 2024 “so … of course they are not going to give us the bad-tasting medicine”.

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Roodt said state revenue doing a “little better” than expected would slowly be coming to an end because commodity cycles were slowly coming to an end.

“Apart from that, many high-income earners are immigrating, so we are losing the tax. “The economy is just not growing, [so] the minister of finance is not getting tax revenue,” he said.

“As far as tax changes are concerned, I do not think the minister is going to make significant changes.”

Roodt added the smaller taxes, like the so-called sin taxes, would always be adjusted upwards and he did not think, on the spending side, aspects such as money being put aside for National Health Insurance would be budgeted for because Treasury did not have enough money.

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“There are not enough taxes available and the demand on the fiscus is really huge,” he said.

“There need to be adjustments made to the budget, which means you have to spend less, but to spend less when there is an election around the corner is politically extremely difficult to do.”

Eskom

Antswisa Transaction Advisory chief economist Miyelani Mkhabela commented on energy security. He said it was necessary that allocations were made for shortterm solutions to improve Eskom operations and maintenance.

“To improve the energy availability factor for economic confidence is the biggest priority. Energy is oxygen for the economy.”

Mkhabela said the budget speech should also focus on plans for manufacturing and production, which would include multiple industries as diverse as the future of the automotive industry, chemicals, electronics, healthcare and textiles.

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He said SA had the most untransformed automotive industry which had challenges for future interventions.

Mkhabela added the minister should have a clear plan for agriculture and agro processing production for food security and to manage price stability for food-related products, as well as additional percentage funding for higher education and science and technology.

– lungas@citizen.co.za