Godongwana’s stern test over Transnet bailout

Economists from Momentum Investments say they do not expect further bailouts for Eskom following the takeover of two thirds of its R450-billion debt last year by government, but that pressure is mounting on Finance Minister Enoch Godongwana to provide relief to the embattled Transnet.

“Given Transnet’s significance to economic growth, officials might perceive limited alternatives. However, extending financial aid to Transnet at a time when fiscal policy is expected to become less stringent ahead of this year’s election will only exacerbate the challenge of establishing SA’s public finances on a sustainable path,” they said.

With revenues undershooting targets, on Wednesday, Godongwana and his team will have to do some fancy footwork to ensure they produce a credible budget in an election year, where the governing party is facing its toughest polls since 1994.

Some suggestions have been to raise the value added tax (VAT) and wealth tax to fill in the hole in the government’s books.

However, analysts from top law firm ENS Africa have shot down these suggestions, saying a hike in VAT in an election year is a non-starter.

“A 1% increase in the VAT rate generates approximately R24-billion of additional revenue. This increase could thus generate more than the R15-billion that the minister indicated was required, but any increase in the rate is linked to demands for further zero-ratings to
assist poorer households,” ENS Africa said.

“In spite of that, our VAT rate is lower than the average for African countries and other countries around the globe, therefore no VAT increase will be announced this year.”

The law firm said while a wealth tax increase would be popular, it would not raise the required funds for the fiscus.

“An increase in the maximum marginal tax rate would likely be a popular change in 2024. An increase in the rate for individuals from the current 45% to, say, 50% may not generate significant additional revenue to warrant a change of this magnitude,” the firm said.

“In addition, there are complexities in introducing such a wealth tax, especially when assets are held by trusts. Any increases in these rates or the introduction of special levies to tax wealth are thus unlikely.”


It remains a big question whether Godongwana will change his mind regarding Transnet’s bailout, as the state-owned entity is crucial to South Africa’s economy, with the hubs, freight rail and fuel pipelines it operates the lifeblood of the economy and imports and exports.

The rail freight company which is currently burdened with R130-billion debt has asked for government to take over a large portion of this debt and inject billions more rands into it to turn its fortunes around.

Instead of giving Transnet a debt and cash bailout, the national Treasury in November opted to give it a R47-billion guarantee – which is not actual cash but makes it easier for lenders to lend the utility money – as that would be guaranteed by the state in case the company is unable to pay the money back.

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