On 23 February investors, economists and all those in education, healthcare, transport – pretty much every sector of the South African economy, will take note of Minister of Finance Enoch Godongwana’s second National Budget Speech.

The finance minister’s speech – as well as the detailed budget documentation – sets the financial agenda for the country each year and is seen as the clearest possible indication of the government’s priorities in that year.

From an Old Mutual Corporate Consultants’ point of view, the main item to be clarified is the planned two-pot system for retirement funds that will allow members to access some of their savings in an emergency. As Managing Executive Blessing Utete says, ‘We need clarity on a few grey areas that came up last year. Importantly, if nothing comes out of this budget, we are heading for a further postponement as 1 March 2024 won’t be achievable.’

3 experts' watch lists for SA’s 2023 national budget

We asked three experts, each in a different field, what they will be watching out for in this year’s budget speech, and what it might mean if those watch-list items don’t get as much attention as they had hoped.

No prizes for guessing that all commentators have loadshedding top of mind. Everyone wants to know what tangible assistance will be provided to Eskom itself and to businesses, farmers and entrepreneurs to alleviate some of the downstream pressures created by interminable power cuts.

Johann Els, Chief Economist: Old Mutual Investment Group

‘Although it is unlikely, a hugely positive move will be a step – any step – towards privatising our SOEs.

‘Other than that, there are a few specific things I would like to see in the National Budget for this year:

• Continued emphasis on fiscal consolidation. By that I mean reducing the budget deficit as a share of GDP over time so that the debt/GDP ratio can stabilise and ease over the next few years. This could take the form of continued action on reducing government’s wage bill as share of total expenditure and strict control over other expenditure items.
• Ideally there should be no new taxes or tax rate increases, except the usual petrol and other sin tax increases.
• Details around Eskom’s debt takeover by government as promised in the October 2022 Medium-Term Budget Policy Statement, specifically the amount and time periods involved and (crucially!) what conditions will be imposed on Eskom.
• And obviously, any policy news from Government.

‘Bad news would include: significant extra spending that will drive the budget deficit higher than the October 2022 forecast; no news given on Eskom’s debt takeover; and an increase on personal income tax or company income tax rates.’

Christo van der Rheede, Executive Director: Agri SA

Christo van der Rheede best encapsulated this view. He says: ‘I think the key question is what will be provided in terms of financial support to Eskom so that it can deliver power effectively? That is the important thing for us. We’re not even talking long term, but rather, what immediate support will Treasury provide?

‘And secondly, to what extent are they going to support the various economic sectors and provide relief?

‘At the moment people are spending huge amounts of money on diesel generators and diesel, and on installing solar systems. We want to know whether there will be any tax incentives, and whether the diesel rebate for farmers will be increased.

‘The cost of all agricultural input supplies – from diesel to fertiliser – are going through the roof. Shipping and logistics too. Then there’s the cost of capital – the interest rate most recently went up 25 basis points, and the current proposed tariff hike by Eskom. This puts a lot of pressure on profit margins in the agricultural industry, a sector with a constitutional mandate to provide the country with food.

‘People who know me know that I always say that it’s not land that produces food, it’s expertise. Without relief, farmers will reach the point where they will have to ask themselves if it still worth being in the game of farming … especially when you consider the support producers in Europe, the US and China get.’

Peter Attard Montalto: Managing Director, Global Lead for Political Economy, Capital Markets and Just Energy Transition

‘It is important to deleverage the Eskom balance sheet to allow Government to refinance the debt more cheaply and make room for cheap climate debt. The markets will be seriously worried if this isn’t announced in the Budget Speech after such a build-up and the pressing need for it.

‘I also expect the Minister to announce higher taxes to support increased social support. There will be large inflation step-ups in all grants and an extension of the Social Relief of Distress (SRD) grant for another year, which may prompt a VAT hike.

‘If there aren’t VAT or other tax changes, there may be worries over medium-run unfunded expenditure which will lead to more bonds being issued.’

If you have questions about the proposed two-pot system for retirement funds, contact Old Mutual Corporate’s group retirement fund experts.