Frank Blackmore, Lead Economist at KPMG

The budget was always going to have an infrastructure focus, mainly looking at Eskom and what will happen to the debt. And then also at other initiatives on spending in the infrastructure space, including on water and sanitation, as well as transport and logistics given the level of decay in on all of those areas, and the budget did not disappoint in this regard. It had an infrastructure focus, which is one of the main points the minister spoke to. Total spending of around 903 billion over the medium term is going to take place, a lot of this focused on state owned companies, an amount of 448 billion and transport and logistics to receive 351 billion of that over the medium term period, and water and sanitation 132.5 billion on there, so that is really good. We also heard of the Eskom debt relief. So, in other words, government who is already standing surety for a lot of the date, it's going to transfer over you it was R280 billion. This will allow the fiscal space for Eskom to borrow for maintenance, and other capital expenditures on transmission, that's going to be very important in solving the longer term sort of stability of the energy grid. What was also good was that no major tax proposals in the budget based on a higher-than-expected revenue collection, and that was even higher than the medium term budget policy statement from last October.

Another contributor to this was the increase in SARS efficiency for which they will be rewarded by an increase in the budget this year as well to continue those increased, increased efficiency gains. Tax relief of R13 billion will be provided, no increase in road accident fund and fuel Levy, as we saw last year. And on personal income taxes, we saw no bracket creak, which is also obviously good news for the individual.

One of the other initiatives I noticed was Tax Free Savings Accounts - the limit on that which is increased by 10% to 550,000, which is also a good move. On the expenditure side expenditure is going to increase by about R230 billion over the medium term and this will include an extension of the SDR grant for another year, an increase in all grant payments that are currently being paid, which is necessary for the social wage. Extra funding was also seen for the National prosecuting office, the office, South African Police Services, the investigating unit Department of Defense and SARS itself has mentioned. And I think all of those is a good thing if we're going to tackle crime and corruption in the country. There were small bailouts for SAA of a billion and the Post Office for 2.4 billion. But these pale compared to the size that is usually offered to state owned enterprises in previous budget.

Also, a good thing was the Treasury also sounds committed to limiting the size the public sector wage bill and increases in that regard. I think that's also a good signal to the international debt agencies.

In that, it signals sort of the fiscal constraint that we have been had to talk about over the past few years. All in all, I think this is a positive budget. It could have been, I think, a lot better had we not had to take over the debt of Eskom on the books, we would have had a nearly an extra R300 billion to spend on sort of public services and improving infrastructure. But we all know that we're in this case, and at least we can probably start moving forward as a country on these in this regard.

Tertia Jacobs, Treasury Economist at Investec

The 2023 Budget has improved Eskom’s cash flows, allowing it to burn more diesel and confidently embark on its maintenance and fixed investment programme. This reduces some of the downside risks to GDP growth. Government has offered a staggered debt solution to deal with Eskom’s R423bn debt burden over the next three years. This will consist of loans, to be converted into equity when conditions have been met, and a debt transfer in F25, totalling R254bn. This loan/equity, combined with the 18.65% tariff increase, will alleviate cash flow pressure on Eskom and finance maintenance, new capex and burn more diesel. The latter could lower load shedding by two stages if Eskom continues to use its OCGTs extensively.

Growth outlook:

Risk to growth moves from the SARB’s 0.3% to Bloomberg’s median growth forecast of 1.1%.

• The emergency interventions for reducing load shedding were repeated. National Treasury warned that the electricity constraint is expected to continue for most of 2023 and that energy constraints could remain a drag on growth for at least the next two years. If energy reforms are implemented more speedily, 6 484MW could be added to the grid over the next 24 months.

• Improve Eskom’s plant performance, procure power from existing IPPs and import power from neighbouring countries.
• Clearing regulatory obstacles by establishing a one-stop shop to bring electricity onto the grid rapidly.
• Supporting the rollout of rooftop solar for households, with a tax rebate and renewable energy tax incentive for businesses.
• Implementing a wheeling framework and grid capacity rules to provide certainty to private producers investing in energy projects.

• Treasury did not add more colour on other economic reforms apart from what is in the public domain. So, this will remain a function of political will and urgency to implement.
• Incentivising households and businesses to install more renewable energy: Households will receive a R4bn tax rebate to install solar panels. R5bn is provided to companies by expanding the renewable energy incentive. Businesses are currently allowed to deduct the costs of qualifying investments over one or three years, which creates a cash flow benefit in the early years of a project. Businesses can deduct 50% of the costs in year 1, 30% in year 2 and 20% in year 3 for qualifying investments in wind, concentrated solar, hydropower below 30 MW, biomass and PV projects above 1MW. Investors in PV projects below 1MW can deduct 100% of the cost in the first year. The expanded incentive will allow businesses to claim a 125% deduction in year 1 for all renewable energy projects with no thresholds on generation capacity. The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 Feb 2025. The diesel refund system to provide full or partial relief for the general fuel levy and the RAF levy to primary sectors – will be extended to the manufacturers of foodstuffs and will be in place until 31 March 2025.
• Tax measures – no major tax changes have been announced as expected, which is positive for households.                

• Tax brackets have been raised to compensate individuals for higher inflation-adjusted salary increases. The cost to the fiscus amounts to R15.4bn.
• Sin taxes will be raised by 4.9%.
• Social grant values (excluding the social relief of distress grant) will be raised by 5.0% (R5.9bn). SRD payments are expected to reach 7.5m at a cost of R35.7bn and have not been adjusted for inflation.
• Minimum royalty rate for oil and gas companies will be raised from 0.5% to 2.0%, with the maximum remaining at 5%.
• Carbon levy for F24 will increase by 1c to 10c/l for petrol and 11c/l for diesel from 5 April 2023.

• Expenditure increases have been more targeted than allowing all departments inflation-adjusted increases. More funds are directed to combat crime, e.g. NPA, SIU and the police. But the key takeaway from a macro perspective is that government is keeping tight reigns on spending.
• Revenue forecast for F23/24 has been left unchanged compared to the MTBPS forecast, whereas I have pencilled in a reduction of R20bn. The key difference in the assumption can be ascribed to National Treasury’s high tax buoyancy assumption, i.e. a bigger efficiency gain from SARS and a widening of the tax base offsets a decline in VAT receipts.

Finances and fiscal consolidation:

• F22/23: The main budget deficit moderates to 4.9% of GDP from 4.5% (in line with our forecast). Revenue receipts have been revised to R10bn higher, and expenditure is R14bn less.‍
• F23/24: The main budget deficit is forecast to decline to 3.9% of GDP. As warned, this is open-ended, as the increase in the public wage bill may only be finalised in October. There is also fiscal accounting that shows a primary surplus over the MTEF period – Eskom’s equity support of R21bn is now part of the financing assumption, which reduces non-interest spending by that amount.

Borrowing requirement: NT will announce the auctions this afternoon.

• Net T-bill issuance will be increased by R48bn
• Cash from SAGBs, ILBs and FRNs issuance by is raised to R330bn from R310bn (note an increase to R378bn in F25).

1. There has not been an announcement about new bonds.
2. On the assumption that non-competitive auctions and the size of the ILB and SAGB auctions are left unchanged, a FRN to the amount of R70bn has to be issued. However, there is upside risk to the size of the bond auctions, as the main budget deficit is likely to be revised higher in October.
3. Cash balances will be drawn down heavily by R93.3bn vs R38bn in the current fiscal year.

We will be watching now for MTBPS in October where expenditure side of the equation will be addressed.

Sarika Rautenbach, Director, Global Mobility Services & Employment Tax Advisory at KPMG

In the 2023 budget the Minister of Finance has announced a much anticipated and very welcome tax break for individuals through the rooftop solar tax incentive. The incentive aims to put money back in the pockets of individuals who invest in the installation of solar panels at their private residence to promote additional energy generation. This will allow individuals to claim a tax rebate to the value of 15% of the cost of any new and unused solar PV panels and will be kept at R15 000.00 per individual for the 2023/24 tax year. This incentive only applies to the panels and not to any batteries or inverters, unfortunately for those who have already invested in solar the incentive will only be available in respect of installation from 1 March 2023, it is proposed that the incentive will be available for one year.

Kate Stubbs, Marketing Director at Interwaste

“It is no surprise that the energy crisis was one of the key points addressed in both the President’s SONA and the Finance Minister’s budget speech due to the dire consequences load shedding is having on South African livelihoods.

It is heartening to see a massive focus in this year’s budget on a few key areas, including:

We believe that the fact that there are no thresholds on the size of projects that qualify and the large taxable income reduction for businesses will certainly increase potential investment in alternative energy and we hope to see that, while still largely expensive, this will lead to larger investment into waste to energy which serves a dual economic purpose.

The continued focus on the Just Energy Transition Plan as well as the Energy Bounce Back Scheme launching in April are also highly welcomed and as an environmental company, we fully support the focus on increasing renewable energy sources into our energy mix as well as the plans underway to facilitate the licensing of independent power producers and the infrastructure investment to enhance transmission of power.

We hope these shifts create opportunities for waste to energy solutions to be included in the mix as they will provide economic, social and environmental benefits to the country.

From a water perspective, government has allocated R132.5 billion over the next three

years, mainly by the water boards. The good news is that the construction of bulk infrastructure – especially in Gauteng – to support water access for communities is critical, including the clearing of backlogged water applications for new projects to drive water sustainability. Lastly and very importantly, the law to establish an infrastructure agency to leverage the assets in the water sector for increased investment in water resource infrastructure is a critical move for South Africa as water infrastructure needs close monitoring, to ensure the effective repurposing of water and that our water sources can be secured.

Joubert Botha, Head of Tax at KPMG South Africa

The Minister of Finance announced in 2023 budget that they expected revenue collections of total 1.6 9 trillion. This exceeds the 2022 budget, and also the medium-term budget by 10.3 billion. The improvement in revenue is due to higher collections in corporate and personal income taxes and in customs duties. It is evident that the compliance drive followed by our revenue authorities is certainly paying off. The compliance drive includes a closer scrutiny of taxpayers tax returns. We can expect in future more scrutiny, we can expect more investigations and more queries from our revenue authorities because this is seen as low hanging fruit to our revenue authorities. And there is a consistent drive in order to improve compliance by taxpayers.

Comment from Roy Naude, Partner International Tax at KPMG

For the first time since 2009, we are likely to see a proposed amendment to the definition of a foreign business establishment in relation to a controlled foreign company for purposes of Section 9D of the Act. One would have thought that such an amendment would have been as a result of the changing way in which companies run their businesses and how the workforce operates post the COVID pandemic. However, the proposed amendment seems to be as a result of the outcome of a recent Supreme Court of Appeal case where coronation was found that the foreign business establishment exemption that it relied upon in respect of a controlled foreign company, did not have sufficient substance according to the case. In order to address the point around substance, National Treasury is proposing to refine the definition of a foreign business establishment in order to clarify what it considers to be the important functions of that CFC. One can only wait and see how this will be implemented on matters that are normally considered to be very fact specific.

Hayley Parry, Money Coach and Facilitator at 1Life’s Truth About Money

Would you like to buy yourself a little bit of sanity as well as get some cash back from the taxman? Well, in today's announcement in the annual budget by Finance Minister, Enoch Godongwana, that R15 000 worth of tax rebate will be available to anyone who puts solar panels on the roofs. I think that would be a good start to do both of those things. The other bit of interesting personal finance angle I found in today's budget, is that the transfer duty threshold has been increased by 10% to R1.1 million. Now what that means is that if you are buying a property, the first R1.1 million that you spend on the property will be excluded from transfer duties. Now, if you would really like to take advantage of this and use this increase to further your own wealth building ambitions, then I've got a great tip for you… and that is that if you add an additional 10% to your monthly repayments, as quoted at the outset of your bond, you will reduce your bond repayment term by approximately seven years. So instead of paying off a 20-year home loan, over 20 years, you could have an asset in your name in just under 14 years.

Venter Labuschagne, Partner KPMG’s Trade and Customs Practice

Unlike most years, in which the budget speech is usually a bit of a humdrum fee from a Customs and Excise perspective, this year actually contains some surprises.

Starting off with some good news for the consumer, the minister decided to keep the fuel Levy and the road accident fund Levy, which form part of the petrol price, at the existing level and not to increase it. Usually, these levies are well above inflation. So, this can truly make a difference in their price at the pump, and consumers will feel the effect in their pockets. Similarly, the Health Promotion Levy, or sugar tax as it is more commonly known, will remain the same and the increase will be made. The good news even extends to the so-called sin taxes, which are the excise duties on alcohol and tobacco products. The minister has chosen to stick to inflation related increases of around 4.9%. This means kind of beer will cost you around 11 cents more expensive going forward. A bottle of wine around 18 cents and a bottle of spirits like brandy or whiskey will cost about R4 more per bottle. A packet of cigarettes just under a rand more.

On a less positive note, carbon tax will increase by around 10%.

Lastly, from a practical perspective, SARS is looking to introduce a new modern travel management system. This is aimed at assisting travellers increasing compliance.

And lastly also on a positive note, SARS has decided to extend its diesel refund system currently available to the mining agriculture and forestry sectors, amongst others, also to include the manufacturers of foodstuffs. This means that there is a benefit in the tax which is paid on diesel used in the manufacture of foodstuffs. This will lead to a decrease in the manufacturing cost of foodstuffs, which would hopefully find its way through to the pocket of the consumer.