Momentum Investments have released their report based on ‘2023 National Budget Preview: Will tough fiscal decisions be left to another day?’ prepared by the Momentum Macro Research Team.

Please see below, a summary of highlights from the team, as well as a downloadable PDF of the research paper.

Commentary and highlights by Sanisha Packirisamy – Economist at Momentum Investments.

Highlights:

• In this year’s State of the Nation Address (SONA), the president announced a number of interventions (particularly in the energy sector), which financial markets viewed as broadly favourable to enhancing economic activity against a slowing growth backdrop and intensifying global headwinds. The success of these interventions relies heavily on government funding and as such the upcoming national budget plays a pivotal role in getting the ball rolling on the implementation of these announced plans.
• The February budget will highlight revenue performance on a fiscal year-to date (FYTD) basis. Data from the South African Revenue Service (SARS) indicates that personal income taxes (PIT) remained resilient thanks to a modest uplift in employment and higher nominal wage growth. Meanwhile value-added tax (VAT) receipts are coming under pressure. Although corporate income taxes (CIT) performed well, more intense loadshedding is likely to weigh on CIT collections in the coming months. As such, Treasury could downwardly revise its revenue assumptions, particularly if it cuts its outlook on SA growth. This could nevertheless be partly offset by higher projections on inflation.
• Rising expenditure pressures (including additional funding for diesel, a potential allocation to offset the negative effects of loadshedding on food prices for the poor and inflation-related adjustments to social grants) are likely to slow the pace of fiscal consolidation and could keep SA’s debt ratio stickier for longer.
• We are expecting five key areas of concern to be elaborated on in the February 2023 National Budget, including:
  • Eskom and loadshedding: Insufficient energy supply poses the biggest downside risk to growth and investment in the economy. Announcements made in the SONA to resolve the insecurity of energy supply (including the imposition of a state of disaster to prevent a total shutdown of the energy grid, a dedicated resource in the way of a new Minister of Electricity to oversee government’s Energy Action Plan to arrest the short-term crisis in energy and increased funding for diesel to lower the intensity of loadshedding in the near term) will likely be expanded upon in so far as there is a consequence for government financing. With financial markets growing impatient for a debt solution to Eskom’s R397 billion elephant in the room, expectations are high for further detail on a debt transfer/restructuring.
  • Continuing support for the most vulnerable in society: While the resolution of the African National Congress’ (ANC) Policy Conference in December 2022 and the SONA alluded to the need for a more permanent solution to respond to the needs of the most vulnerable, no specific details have been outlined. Indeed, Treasury has previously confirmed that a permanent extension or replacement would only be possible through a reduction in spending elsewhere or a permanent increase in revenue (or a combination of the two) to ensure the stability of the public purse. However, policies aimed at shorter-term electoral gains remain a risk in the run up to the 2024 national elections.
  • Public wage bill negotiations: Treasury pencilled in a negative real wage increase for its civil servants for fiscal year 2023/24 (FY2023/24). However, high food and fuel costs are likely to see pushback from the public sector unions. Even though Treasury may maintain its initial assumptions on the public sector wage bill at the upcoming national budget, negotiations could drag out for months.
  • Structural reforms: Reducing policy uncertainty and fast-tracking the implementation of structural reforms that have wide-reaching benefits to improve the country’s growth trajectory and job outlook require a broader political consensus on what is needed to fix SA’s ailing growth rate. Aside from a progress update on Operation Vulindlela, Treasury may announce funding that is required to fix financial inadequacies at other state entities, aside from Eskom. It may further elaborate on cost savings associated with rationalising government departments.
  • Ailing municipalities and their role in service delivery: Treasury is likely to outline some of the interventions previously announced to improve professionalism in public service and will likely highlight areas where it is focusing on to build capacity to improve service delivery.

Download a copy of the report, click below…

National Budget Preview – Feb 2023

ENDS