Experts expect Finance Minister Enoch Godongwana to deal with several key issues during his budget speech on Wednesday.
Momentum Investments head of investment research and asset allocation Herman van Papendorp and economist Sanisha Packirisamy wrote in a note that they expected Godongwana to deal with five key issues during the budget speech.
This includes, Eskom and loadshedding, public sector wage negotiations, ailing municipalities and their role in service delivery, among others.
Godongwana will also announce funding measures to deal with Eskom’s precarious financial position.
During the medium-term budget policy statement in October last year, the National Treasury said the government would take over between one-third and two-thirds of Eskom’s R400bn debt. Van Papendorp and Packirisamy wrote that investors expected the state to take over between R200-billion and R250-billion of Eskom’s debt.
“This will be staggered across several years,” they added.
Allan Gray portfolio manager Thalia Petousis wrote that the power utility generated less than half of the cash it needs to service its debt.
Earlier this month, President Cyril Ramaphosa, during his state of the nation address (Sona), said funding would allow the power utility to invest in maintenance and transmission.
Van Papendorp and Packirisamy wrote that during Sona, Ramaphosa announced several interventions, especially in the energy sector, including a state of disaster and a new electricity minister.
Godongwana said last October that Eskom was the “biggest known risk to the economy and public finances”.
The package of measures that Godongwana will announce will be the biggest support the state has given Eskom since it announced an R230-billion injection in 2019.
The National Treasury has provided R140-billion so far. In addition, Eskom has used R324-billion of its R350-billion government guarantee facility.
Papendorp and Packirisamy said they expected Godongwana to reduce its tax revenue assumptions in his budget speech partly because of loadshedding.
They expect rising government expenditure, including extra money for diesel at Eskom and inflation adjustments to social grants were likely to keep the state in a tough financial position for longer.
“The market expects a revenue overrun slightly smaller than what was announced previously. As a result, in the October 2022 medium-term budget, gross tax revenues were estimated to be R83.5-billion higher than February 2022 assumptions,” they wrote.
Ninety One fixed-income analyst Sisamkele Kobus noted that National Treasury was likely to cut its revenue forecasts due to lower commodity prices and weaker mining volumes.
“The intensity of loadshedding and its impact on GDP growth will also devastate tax collection,” Kobus added.
Regarding public sector wages, Papendorp and Packirisamy said the National Treasury pencilled in a 3% wage increase for public servants for the 2023/24 fiscal year. “However, high food and fuel costs are likely to see push back from the public sector unions,” they added.
Papendorp and Packirisamy said the final public sector wage settlement is likely to be between 5.5% and 6.5%.
They expect Godongwana to announce a small increase in the general fuel levy, an inflation-adjusted increase in the sugar tax and an increase in carbon taxes.
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