Finance Minister, Enoch Godongwana, delivered his maiden budget speech on 23 February.

The speech started by indicating that there are still high risks to the economy, which is slowly recovering from the Covid-19 pandemic. The budget reasserts the commitment made in the 2021 MTBPS to set the economy’s course towards growth and fiscal sustainability.

It was announced that employment support will also be extended to the most vulnerable, service delivery shortcomings would be addressed and some tax relief was announced. The minister said these interventions can’t replace the structural changes the economy needs.

Economic Outlook

The world economy has grown at a lower rate since many countries had to impose restrictions to manage the spread of the Omicron variant of Covid-19.

The economic growth estimate for the South African economy had to be revised from 5.1% to 4.8%. This is a result of the global challenges, as well as our unique situation.

The violent unrest in July 2021 and the restrictions imposed for the third wave of Covid-19, industrial action, and the re-emergence of loadshedding further slowed down economic recovery.

Revenue Collection

Tax collection has been stronger than expected and stands at R1.55 trillion for 2021/22. This is after a shortfall of R176 billion for 2020/21 when compared to the 2020 Budget forecasts.

Fiscal Outlook

• The minister reported that more than R308 billion has been earmarked to bail out failing state-owned companies.
• Government remains on course to restore the health of public finances, but the debt burden is still of serious concern.
• Government debt has risen to R4.3 trillion, and it’s projected that it will rise to R5.4 trillion over the medium term.
• It is projected that the consolidated budget deficit will narrow from 5.7% of GDP in 2020/22 to 4.2% of GDP by 2024/25.
• The debt ratio will stabilise at 75.1% of GDP by 2024/25.
• The borrowing requirement has decreased for the first time since 2015.

Risks to Fiscal Framework

The fiscal outlook is still subject to significant risks, which include:

• Slow global and domestic growth. A call for permanent social protection that exceeds available resources.
• Pressure from the public service wage bill.
• Continued financial support for state-owned companies.
• Eskom’s debt remains a concern, and government continues to support the entity while it pays off its debt. Eskom will receive a further R88 billion to service its debt until 2025/26.

Economic Recovery

• Steps are being taken to reform the electricity sector. This includes the lifting of the registration threshold of embedded generation to 100 megawatts.
• New generation projects will be coming online over the next few years, in the hope of solving South Africa’s electricity supply challenges.
• A provisional allocation has been set aside in the Budget for R17.5 billion for infrastructure catalytic projects.

Business Bounce-Back Scheme

A new business bounce-back scheme will be launched for SMEs that are still in distress because of the Covid-19 pandemic.

• Small business loan guarantees of R15 billion will be facilitated through participating banks and development finance institutions.
• A business equity-linked loan guarantee support mechanism will be introduced by April this year.
• The total support package through the bounce-back scheme will amount to R20 billion.

Public Employment and Compensation

• R76 billion has been allocated over the medium term for job creation programmes.
• This Budget makes an additional R18.4 billion available for the Presidential Employment Initiative.
• Compensation spending will increase from R665.1 billion in 2021/22 to R702 billion in 2024/24.
• Additional funding of R20.5 billion was allocated in 2022/23 to cover the costs of the 2021 public service wage agreement. A Public Sector Labour Summit will take place from 28 to 31 March, where stakeholders will look at creating sustainable public service remuneration guidelines.

Social Spending

• 33 trillion is being allocated to the social wage over the next three years, to support vulnerable and low-income households.
• An additional allocation of R32.6 billion financial support to bursary holders under the National Student Financial Aid Scheme.
• 6 billion is allocated to provincial education departments to address shortfalls in the compensation of teachers.
• A further R15.6 billion is allocated to provincial health departments to support their continued response to Covid-19.
• 3 billion is allocated to absorb medical interns and community service doctors.
• 7 billion has been added to the Police budget. Another R1 billion will go toward personnel reforms.
• The budget of the Department of Justice and Constitutional Development has been increased by R1.1 billion. The Office of the Chief Justice will receive another R39.9 million.
• The South African National Roads Agency (SANRAL) receives R9.9 billion for maintaining the non-toll road network.
• The Department of Social Development will receive an allocation of R58.6 billion over the medium term, which will cover increases in the various grants. R44 billion will go towards a 12-month extension of the R350 social relief of distress (SRD) grant.

Tax Proposals

No major tax increases were implemented, as households are still under financial pressure from having to deal with the fall out of Covid-19, increased fuel prices, as well as other substantial increases in the cost of living.

The main tax proposals for 2022/23 are as follows:

• The personal income tax brackets and rebates will be adjusted by 4.5% in line with inflation. The yearly tax-free threshold for people under the age of 65 will increase to R91 250.
• Medical tax credits will increase to R347 for the first two members and R234 per month for additional members.
• The employment tax incentive is being expanded by 50% in the maximum monthly value. This will provide additional support to the value of R2.2 billion.
• There will be no increase in the fuel levy for 2022/23. This will provide tax relief to the value of R3.5 billion. There will be no increase in the Road Accident Fund levy.
• Corporate Income tax will be reduced from 28% to 27% for companies with years of assessment ending on or after 31 March 2023.
• Excise duties on alcohol and tobacco will increase between 4.5% and 6.5%.
• The carbon tax rate will increase to R144, effective from 1 January 2022. The carbon fuel levy will increase to 9c per litre for petrol and 10c per litre for diesel from 6 April 2022.

The minister ended his speech by reiterating government’s commitment to the reconstruction and recovery of the economy, saying that there was still a long road ahead, with many challenges, when it comes to rebuilding the economy.