Finance Minister Enoch Godongwana will be rearranging the deck chairs on the Titanic next week when he tables the Budget amid demands to reappropriate money to fund a raft of social security spending on the back of a shrinking economy.
This comes after a number of promises made by President Cyril Ramaphosa during his State of the Nation Address on Thursday in a bid to alleviate the hardship brought about by the ongoing energy crisis on businesses and households.
Ramaphosa said Godongwana would outline how households will be assisted and how businesses will be able to benefit from a tax incentive through the rollout of rooftop solar panels.
However, economists on Friday began to poke holes in this social spending extravaganza seeing that the government loses a lot in tax revenue while loadshedding continues.
Chief economist at Econometrix Azar Jammine said he was concerned that the government would not be able to curb this spending in future once it begins rolling out these programmes.
Jammine asked where the government would get the additional money to continue subsidising things like that given the existing constraints on the fiscus.
“It concerns me that the whole [rollout] of solar is contributing towards more and more inequality in the country because the people who are able to afford to bypass loadshedding are precisely those who have the means to do so,” Jammine said.
“The underclass is left further and further behind by such a thing. To that extent, a subsidy might work, but my God, it's mind-boggling to think of how big a project this would be and how the government could actually afford to subsidise such an exercise in the longer term.”
Ramaphosa also committed the government to supporting Eskom with additional funding to purchase diesel for the rest of the financial year in a bid to reduce the severity of load shedding.
Efficient Group chief economist Dawie Roodt, however, said Ramaphosa’s speech was “a swan song of a dying party”.
Roodt said that as far as electricity was concerned, the important and very difficult thing politically for Ramaphosa to do was to address the main issues at Eskom.
“And the main issues are [that] they are spending too much money on the wrong kind of things, which means there are too many people, the wrong kind of people working at Eskom. You need to fire them, and he’s just not prepared to go there,” Roodt said.
“The second one is that you have to do something about the revenue of Eskom, which means that the local authorities must start paying for Eskom.
“And the president actually said not too long ago that Soweto should be exempted or their debt should be written off. So those are the issues. There's no financial plan for Eskom, and Eskom is not going to work. This is not a solution for Eskom.”
Ramaphosa’s speech also confirmed the continuation and increase of the social relief of distress (SRD) grant for 7.8 million beneficiaries “within fiscal constraints” to cushion the poor against rising inflation.
Around 60% of South Africa’s annual budget is spent on what is known as the social wage, providing various forms of support, basic services and assistance to households and individuals to combat poverty and hunger.
Previously, Treasury confirmed that a permanent extension or replacement of the grant 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.
Momentum Investment economist Sanisha Packirisamy said the fiscus large might not be enough to accommodate these undertakings due to dwindling tax revenue windfall from the mining industry.
Packirisamy the extension of SRD grants beyond March 2024, the public sector wage bill and State-owned entities continued to be the biggest risks to the fiscus.
“This year I think we will still see very decent revenue numbers. We might actually get an overrun that looks quite similar to the revenue overrun we saw last year,” Packirisamy said.
“But going into next year, I think it changes a bit on its head because now we have the logistical issues that are coming at play, we also have the issue of load shedding.
“And so businesses now have to start spending on diesel back-up generators and alternative forms of energy, the fact that commodity prices have rolled over, is going to be less conducive for revenue to increase at the same clip going into next year.”
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