South Africa: Finance Minister Enoch Godongwana Delivers Maiden 2022 Budget Speech

Cape Town — Finance Minister Enoch Godongwana, has deliver what many have called a ‘cautious’ budget. In his opening remarks, he emphasised that South Africa’s economic recovery “has been uneven” and risks remain high.

He says that the 2022/2023 budget intends to narrow the budget deficit and stabilise debt. “It also extends income and employment support to the most vulnerable, addresses service delivery shortcomings and provides tax relief.”

Minister Godongwana noted that the world economy is expected to grow by 4.4% in 2022 – which he said is lower than the 4.9% anticipated when the medium term budget was tabled in 2021.

Impact of Omicron Variant 

“The Omicron variant of the novel coronavirus caused many countries to impose restrictions to manage its spread. In addition, continued imbalances in global value chains have limited the pace of the world’s economic recovery.”

The minister said that the Treasury revised South Africa’s 2021 GDP growth to 4.8% from 5.1% last year.  “This revision reflects a combination of the impact of changes in the global environment, along with our own unique challenges.”

As part of the support offered to vulnerable households, there was a proposal to extend the R350 grant that was implemented during the Covid-19 pandemic by 12 months.

R2.3 billion has been allocated for more doses and administering of COVID-19 jabs in the 2022/23 financial year, as well as an “additional R15.6 billion is allocated to provincial health departments to support their continued response to COVID-19, and to bridge shortfalls in essential goods and services. R3.3 billion is allocated to absorb medical interns and community service doctors”.

Real GDP Growth

“Real GDP growth of 2.1% is projected for 2022. Over the next three years, GDP growth is expected to average 1.8%.”

The minister was upbeat about tax revenues which are R182 billion higher than estimated in the 2021 budget. He said “this positive surprise has come mainly from the mining sector due to higher commodity prices.”

He warned though that improved revenue performance is not a “reflection of an improvement in the capacity of our economy.”

Sasria and riot claims:

The civil unrest in parts of KwaZulu-Natal and Gauteng last year led to a large number of claims from the South African Special Risk Insurance Association (Sasria), which provides insurance for risks such as strikes, riots, and terrorism. Claims amounted to R32 billion, and Sasria was unable to meet the obligations with its available resources.

Sasria has been allocated R22 billion in the current financial year – this includes the R3.9 billion allocated last year as well as R11 billion as part of a provisional allocation from the contingency reserve. A further R7.1 billion is also to be allocated to respond to “unforeseen and unavoidable circumstances”.

Sasria will also be increasing its premium prices, review its reinsurance arrangements, and find new ways to increase its client base in order to respond to risks without having to rely on government.

The Land Bank:

The minister said that the Land Bank remains in financial distress after defaulting on its debt in 2020/21. “Treasury had assisted the bank – which extends loans to the agriculture sector – with R3 billion at the time and made further allocations of R5 billion in the 2021/22 fiscal year, and R1 billion for each of the next two years.

The R5 billion transfer to Land Bank is unlikely to materialise in 2021/22 owing to delays in concluding negotiations with lenders. As a result, the contingency reserve for 2022/23 has been increased for the R5 billion to be paid in the new financial year. The provision of this funding is conditional. Conditions for the release of these funds have not yet been met. So far, the Land Bank has reduced its debt by 29%, from R40.6 billion to R29.2 billion, through capital repayments. Its planned debt funding is about 58% of the total allocated between 2022/23 and 2024/25″, the minister added.

On government debt:

The country’s debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term.

“This huge sum is owed to lenders domestically and around the world. It incurs large debt-service costs; averaging R330 billion annually over the medium-term. These costs are larger than spending on the health, policing or basic education.

The minister said the state “will reduce the fiscal deficit and work to stabilise debt”.

“The consolidated budget deficit is projected to narrow from 5.7% of GDP in2021/22, to 4.2% of GDP by 2024/25. “We now expect to realise a primary fiscal surplus – where revenue exceeds non interest expenditure by 2023/24” he said.

Minister takes aim at State-Owned Companies, Shows Tough Love:

The minister says that “continual demands” on South Africa’s limited public resources from state-owned companies cannot continue.

“For this reason, SOCs need to develop and implement sustainable turnaround plans. The future of our state-owned companies is under consideration by the Presidential State-Owned Enterprises Council.”

Godongwana says the future of state entities will be informed by the “value they create and whether they can be run as sustainable entities without bailouts from the fiscus”.

South African Airways:

There won’t be any additional funding for South African Airways (SAA) from state coffers this year. The flag carrier SAA has a R3.5 billion funding gap and had requested assistance from Treasury – to no avail. Treasury funded the airline’s business rescue process with R10.5 billion in 2020/21. In addition, according to News24, Treasury in 2020 allocated R16.4 billion to the airline over the medium term to settle its state-guaranteed debt and interest costs – so far, R14.6 billion has been paid out. The remaining R1.8 billion will be paid in 2022/23, according to the budget document.

Eskom:

The state will continue to support embattled state-owned power utility Eskom. The entity has been provided with R136 billion to pay off its debt with a further R88 billion until 2025/26.”

“We acknowledge that Eskom is faced with a large amount of debt that remains a challenge to service without assistance.” The minister said that Eskom must cut costs, sell assets and implement “operational improvements” to enhance the reliability of electricity supply.

South Africa’s economy has been struggling under the impact of regular loadshedding for a number of years. The erratic electricity supply has impacted heavily on the manufacturing, hospitality and food sectors, and has led to job losses, when unemployment is already at record levels.

Denel:

State Defence firm Denel has been allocated R3 billion to settle interest payments. This amount is inclusive of the R2.9 billion announced during the medium-term budget policy statement in November 2021.

Economic Stagnation:

Minister Godongwana described the economy as experiencing “more than a decade of economic stagnation”.

“Only through sustained economic growth can South Africa create enough jobs to reduce poverty and inequality; enabling us to reach our goal of a better life for all.” The minister says the government will accelerate infrastructure investment, which he calls the  “backbone of a thriving economy”.

Support for Businesses In Distress:

A new business bounce-back scheme will be launched by the government, using two mechanisms – which will be introduced sequentially.

The minister explained that this scheme will firstly assist with small business loan guarantees of R15 billion that will be facilitated through participating banks and development finance institutions.

“This allows access for qualifying non-bank small and medium loan providers.” The government will partner with loan providers by underwriting the first 20% of losses for banks and other eligible small and medium loan providers”, Godongwana added.

Funding for Job Creation: 

Godongwana says the government has allocated R76 billion for job creation programmes over the medium term.

“In this Budget an additional R18.4 billion is made available for the Presidential Employment Initiative.

More Money to Support Low-Income Households:

Over the next three years, the government will allocate R3.33 trillion to the social wage to support vulnerable and low-income households. This is approximately 60% of non-interest spending.”

Student Study Funding to Increase:

To boost funds for students, Godongwana said the government is allocating R32.6 billion for financial support to current bursary holders and first-year students, under the National Student Financial Aid Scheme(NSFAS).

Shortfalls will be funded from within the baseline of the Department of Higher Education.

Infrastructure Projects in the Pipeline:

The minister spoke about the state’s infrastructure projects, that includes work on the Clanwilliam Dam wall and the modernising of six border posts.

Increases to Social Grants:

The minister announced that for the 2022/23 fiscal year, the old age, war veterans, disability and care dependency grants, will increase by R90 in April 2022 and a further R10 in October 2022.

The foster care and child support grants will increase by a once off R20 in April 2022, while the R350 social relief of distress grant, or Covid-19 grant, has been extended by 12 months.

Municipalities in Financial Distress:

Godongwana said that 175 out of 257 municipalities are in financial distress. “We stand ready to work with parliament and all oversight bodies to hold municipalities accountable for delivering services.”

“At the same time, our municipalities and other institutions cannot survive if they don’t receive payment from those who consume their services.”

“We urge our people and government departments to pay their municipal bills.”

His comments come as the City of Johannesburg has cut services to some of its major defaulters as part of recovering the R38 billion owed for services

Pointing a Finger at Corruption:

The minister has also allocated R664.3 billion over the next three years to improve the country’s safety and security, and the criminal justice systems.

He added that South Africans should differentiate between “corruption and minor transgressions of the rules of policy prescripts that are audited as irregular expenditure”.

The National Treasury is engaging with the Auditor-General to continue to ensure transparent disclosure of minor transgressions, but outside the financial audit process.”

“We must take bold steps to improve state capability and reduce the scope for procurement corruption,” he said.

He highlighted the work done by the SA Revenue Services (SARS) in the fight against illegal tobacco – which during the pandemic rose to R350 million in value.

Tax Relief and Rethinking Fuel Pricing:

“Now is not the time to increase taxes and put the recovery at risk,” Minister Godongwana said.

“This Budget includes R5.2 billion in tax relief to help support the economic recovery, provide some respite from fuel tax increases, and boost incentives for youth employment.”

The personal income tax brackets and rebates will be adjusted by 4.5%.

The fuel levy will also not be increased. “This will provide tax relief of R3.5 billion to South Africans.”

Godongwana said that teams will review how the fuel price is calculated.  Godongwana said he has been in consultations with the Mineral Resources and Energy Minister Gwede Mantashe, with the intention of “reviewing the structure of the petrol price going forward – to be competitive in this economy”.

Sin Taxes Take Another Knock

Excise duties on alcohol and tobacco will increase by between 4.5 and 6.5%, the minister said. A packet of cigarettes will cost R1.03 more, while a 340 bottle of beer will cost 11c more.

He also announced a new proposed tax on vaping products from January 2023 as well as a new tax on beer powders.

Environmental Concerns on Carbon Tax:

The carbon tax rate – which is targeted at reducing the country’s carbon emissions – will also be increased. “The carbon tax rate will increase from R134 to R144, effective from 1 January, 2022.”

“The carbon fuel levy will increase by 1c to 9c per litre for petrol, and 10c per litre for diesel, from 6 April 2022.”

“The first phase of the carbon tax, with substantial allowances and electricity price neutrality, will be extended to 31 December 2025.”

The minister said that in line with the government’s commitments at COP26, the carbon tax rate will be progressively increased every year to reach U.S.$20 per tonne.”

No Increases in VAT and Other Taxes, Yet:

The minister did sound a warning that while VAT and other taxes could be hiked in future. “We have reduced the corporate tax rate and broadened the tax base. However, let me restate my earlier caution, that if there are permanent expenditure increases in the coming years, we would have no choice but to revisit this to ensure the fiscal deficit does not worsen.”

Retirement Fund Restructuring and Loans:

Towards the end of his speech Minister Godongwana touched on a “fundamental restructuring of the retirement system for individuals”. This would allow for what he called “greater preservation and partial access to funds”.

The minister says the trustees of funds will continue to make decisions on the withdrawal of funds by members. “Consultations are proceeding following the release of a discussion paper last year and the draft legislation on these amendments will be published for comment in the middle of the year.”

Modernising government services:

General public services will, over the next three years, reprioritise R2.4 billion to modernise information and communication technology, as well as fund the shortfall in the allocation for the Integrated Financial Management System (IFMS).