The budget missed the opportunity to kick start the economy

While there are some commendable positives from the Budget Speech – such as the increased efficiency at SARS and the decreased deficit, the increased debt and debt servicing implications as a result of the Eskom situation are concerning. 

This is according to Sean Segar at Nedgroup Investments. “The emphasis on the primary surplus in this year’s budget must be viewed with caution. We have to consider the massive ongoing interest cost implications of the government funding its mounting debt, compounded by the taking on of the Eskom debt. This material expense has been side-lined in the reports focussing on the surplus.” 

There are significant costs involved in terms of servicing the debt, and as far as Eskom’s balance sheet is concerned, the phrase “Reshuffling the deck chairs on the Titanic comes” to mind,” he says. 

Of course, fixing the balance sheet is one thing, but this does not lead to power generation. After over R500b in special funding from the government Eskom is producing less power. This is a natural concern South Africans have when listening to how all their tax funds are being allocated. 

Debt servicing to cost South Africa over R1bn per day 

“When we spend with borrowed money, we must remember that we have to pay it back,” says Segar. 

“The debt servicing costs for South Africa has already become a huge cost for the taxpayer. At roughly R1billion per day, this means we are paying approximately $1 per day per person in South Africa just to service our government debt. 

Furthermore, the country’s debt servicing cost is increasing disproportionately to other expenditure and is expected to grow from 18% this year to 19.8% of main budget revenue in the next 3 years. This is all the more reason not to exclude this from the primary surplus/deficit numbers – rather we should watch it like a hawk,” he says. 

Having said that, Segar does not expect the bond market to be flooded with extra issuances by Treasury as the normal programmes and cash usage can fund this budget. 

Relief grants treating the symptoms not the cause 

Segar also wants to see longer-term thinking when it comes to the portion of the budget allocated to social grants. “Social grants are a short-term relief, and they are not solving the long-term problem for people. While they do contribute to the economy in the form of helicopter money, they often tend to be a political tool instead of actively encouraging economic growth which is what we need to truly improve the lives of most South Africans. I would rather see some of this money go towards infrastructure projects that create long-term employment. It seems that the master plan to grow the economy, and to reduce poverty and unemployment is missing,” he says. 

Business and consumer friendly? 

Some business relief was announced in the form of diesel fuel levy refunds for the manufacturers of food, and tax incentives to install renewable energy. “The fact remains that businesses should have had a reliable energy source in the first place and not need to be using millions of litres of expensive diesel. So, unless you are Eskom, a supplier of renewable energy, or a destination for the spend of the massive social grant programmes, it’s not really a business-friendly budget,” he says. 

For consumers there was the normal kind of relief in the form of tax breaks which will help alleviate the cost-of-living crisis many find themselves in. “Unfortunately, consumers are already under so much pressure with high interest rates and high inflation, so the truth is that the consumer could not really take any more taxes and Treasury realises that. Against the harsh backdrop for consumers at the moment, the tax breaks will be welcome relief for many people,” says Segar. 

Need to kickstart growth 

South Africa still lags Africa and most of the world in terms of growth and, according to Segar, there is nothing significant in this budget that will kickstart that growth to the levels a country with the potential of South Africa should be at. 

“It is never an easy job balancing a budget and South Africa’s budget process is highly regarded internationally. A stand out positive is SARS under the leadership of Commissioner Kieswetter. He and his team have done an incredible job, “says Segar.