Medium-Term Budget Policy Statement (MTBPS) Review.

The Medium-Term Budget Policy Statement (MTBPS) for 2023 was unveiled by Finance Minister Enoch Godongwana on 1  November 2023. The MTBPS, also referred to as the “mini-budget”, allows government departments to apply for adjustments to their budgets, apply for rollovers, and request additional funds for unforeseeable and unavoidable expenditures.

It sets government policy goals and priorities, forecasts the macroeconomic trajectory, and projects the fiscal framework over the next three years by outlining spending and revenue estimates.

Cecil Kilpin | CA(SA) - Accounting, Auditing & Tax Specialist/ Professional >> November 2023 Newsletter

The 2023 MTBPS came with the backdrop of poor global and local growth, falling revenues, and cost pressures for households, business, and government. As an alternative to raising taxes, the government was advised to focus on improving the efficiency of revenue collection through digitisation, modernisation of tax systems, and deploying artificial intelligence (AI).

The National Treasury has had to revise downwards the gross tax revenue of R1.8 trillion announced in the February Budget Review due to a slowdown in commodity prices and uneven global growth, which in turn impacted corporate income taxes. If the National Treasury also penciled in lower economic growth (expected at 0.9% at the beginning of 2023), this could have seen a deterioration of key fiscal indicators.

Here are the key highlights of the Medium-Term Budget Policy Statement (MTBPS) for 2023:

  1. Budget Shortfall: Finance Minister Enoch Godongwana announced that the budget shortfall hits almost R57 billion
  2. Spending Cuts: There were significant spending cuts announced, but some economists believe they don’t go far enough. The cumulative reduction in spending is around R154 billion over the three-year medium-term expenditure framework period
  3. Debt Crisis: A mounting debt crisis was cited as a cause for concern
  4. SRD Grant Extension: The Social Relief of Distress (SRD) grant was extended for another year, costing the government an additional R34 billion
  5. No Major Bailouts: No further major bailouts were announced for state-owned enterprises (SOEs) such as Eskom, Denel or SAA
  6. Public Sector Wage Increase: Additional funding of R24 billion for the 2023/2024 public sector wage increase was announced
We look forward to the budget in February 2024 where the impact of these changes will be revealed as well as any further tax changes may be announced to fund the shortfall.

Reforms to Deliver Growth Over the Medium Term.

The Medium-Term Budget Policy Statement (MTBPS) presented by Minister Enoch Godongwana on 1 November 2023 outlined several key reforms aimed at delivering growth over the medium term:
  1. Stabilise Public Finances: The aim is to maintain support for the most vulnerable and protect front line services
  2. Fast Track Growth-Enhancing Reforms: This includes a new financing mechanism for large infrastructure projects
  3. Reconfigure the Structure & Size of the State: The goal is to strengthen the state’s capacity to deliver quality public services
Cecil Kilpin | CA(SA) - Accounting, Auditing & Tax Specialist/ Professional >> November 2023 Newsletter
These priorities echo the message delivered by the President. The economic outlook over the medium term remains weak, reflecting the cumulative effect of power cuts, the poor performance of the logistics sector, high inflation, rising borrowing costs, and a weaker global environment. The International Monetary Fund forecasts global growth to slow from 3.5 per cent in 2022 to 3 percent in 2023 and 2.9 percent in 2024. Domestically, South Africa forecasts a 0.8 percent growth in real GDP in 2023.
In addition, the MTBPS also proposed reductions in spending by R21 billion for the current financial year, with further reductions of R64 billion in 2024/25 and R69 billion in 2025/26. No bailout was announced for Transnet. These reforms and measures are part of the government’s commitment to fiscal consolidation and potential for economic growth.

Solar Tax Breaks.

Electricity Minister Kgosientsho Ramokgopa has stated that his department is advocating for the tax incentive for solar PV to be extended to batteries and inverters¹. The government wants more businesses and households to opt for rooftop solar, and efforts are under way to push for a tax incentive to be extended to inverters and batteries part of solar PV systems.
Cecil Kilpin | CA(SA) - Accounting, Auditing & Tax Specialist/ Professional >> November 2023 Newsletter

Currently, the government is offering a 25% tax incentive to households on their solar PV panels. The incentive has been effective since 1 March 2023 and will run until 29 February 2024. Claims are capped at R15 000. The incentive strictly applies to solar panels – and not to inverters or batteries. However, Ramokgopa believes that the incentive must be extended to these components.

“We are advocating for, as a department, that we need to have that incentive to be extended to components of that ‘self-generation mix’ that carries the heaviest capital cost… It shouldn’t just be restricted to PV but also should be extended to batteries and inverters”.

An expanded incentive would see a “considerable uptake” of solar PV systems. However, it’s important to note that the final decision on this matter lies with the National Treasury. We will keep you informed on developments in this regard.

Two Pot Retirement System Delayed.

The National Treasury has proposed a delay in the implementation of the ‘two-pot’ retirement system until 1 March 2025. This system is designed to allow people to access one-third of their pension savings before retirement. The delay is intended to provide the savings and investment industry with more time to administer the changes.

Under the planned two-pot system, it will be compulsory for retirement funds to split member contributions into two components. One-third goes to a savings pot that is available any time to meet emergency expenses, while the remaining two-thirds will go to a retirement pot that will have to be used to purchase an annuity upon retirement.

Cecil Kilpin | CA(SA) - Accounting, Auditing & Tax Specialist/ Professional >> November 2023 Newsletter

The Treasury has also proposed increasing the amount that workers can immediately access once the two-pot system comes into effect from an initial R25 000 to R30 000. This so-called seed capital amount equates to 10% of a member’s retirement savings value on 28 February 2025 up to a maximum of R30 000.

We will keep you informed of developments in this regard.

Sincerely,

Cecil Kilpin | CA(SA) - Accounting & Auditing Specialists >>Newsletter Greeting