The 2023 Budget speech was a surprise-free, pragmatic and credible response to a challenging set of global and domestic economic circumstances.
Prof Raymond Parsons, an economist from the North-West University (NWU) Business School, commented on the 2023 Budget introduced to parliament by the Minister of Finance, Enoch Godongwana.
“Although having received some windfall tax-revenue gains, Finance Minister Enoch Godongwana still had a difficult balancing act given the political and economic constraints within which he had to shape fiscal policy.”
Prof Parsons says South Africa’s public debt remains high and is set to stabilise at 73,6% of the gross domestic product (GDP) in 2025/26 – three years later and at a higher level than projected in the 2022 Medium Term Budget Policy Statement (MTBPS).
According to Prof Parsons, fiscal risks therefore still exist over the next few years. “These risks broadly arise from factors such as the management of the major Eskom debt-relief framework, the final outcome of the public sector wage negotiations, and ultimately the impact of low GDP growth on tax revenues.”
Several major state-owned enterprises also continue to rely heavily on government bailouts. Higher tax revenues depend on sustained future investment and economic growth.
“While the substantial debt-relief arrangement for Eskom is inevitable, it must be implemented in a way that overcomes the causes of the current malaise and supports the rapid development of the power sector as a whole to meet the critical supply and environmental problems being faced. The tax incentives to business and households to install solar panelling are welcome, although the threshold for households appears to be quite conservative.”
Prof Parsons says the Treasury assumption of an average GDP growth rate of 1,4% over the next three years underpinning the budget strategy may be too optimistic compared to recent forecasts of about 0,7% over the same period by the South African Reserve Bank (SARB) and others.
“It is also clear that South Africa’s future growth prospects are now less dependent on fiscal policy than on the ability of the rest of the Cabinet to implement the economic and energy reforms needed to give South Africa much higher job-rich growth,” he concludes.
