In a Nutshell: The 2022 Mid-term Budget Speech

The 2022 Mid-term Budget Policy Statement speech delivered by Finance Minister Enoch Godongwana was pro-growth on the economic front, supporting service delivery while firmly sticking to critical fiscal consolidation in the context of the current highly uncertain economic environment.

Although there are implementation risks around the public sector wage bill, debt to GDP has stabilised earlier than expected, with real GDP growth coming in at 1.9%, lower than the 2.1% initially forecast in the February 2022 Budget.

Our biggest takeaways from the mid-term budget speech.

The Big 3 Bailouts.

All three companies, Sanral, Transnet and Denel, are felt to be important enablers of economic growth, but face short-term challenges requiring immediate injections of funds. The Treasury has allocated the following funds to state companies:

• R23.7 billion for Sanral to pay off government-guaranteed debt, conditional on a solution to Phase 1 of the Gauteng Freeway Improvement Project.
• R5.8 billion for Transnet. Half of which is shifted funds to repair infrastructure damaged by the recent floods and half to increase locomotive capacity.
• R204.7 million for Denel to reduce contingent liabilities arising from its weak financial position and R3.4 billion and if set conditions are met, to complete its turnaround plan.

Tackling Eskom’s Debt.

Godongwana said that the government will be taking on “a significant portion” of Eskom’s R400 billion debt. While the exact figure is not yet known, he said it will be between one- to two-thirds of the power utility’s current debt – so between R130 billion and R260 billion. In short, the plan is to provide debt relief to Eskom making more resources available for Eskom to invest in ensuring critical electricity supply and transmission infrastructure.

Other Significant Highlights.

There are currently 12.3 million unemployed adults in the country, with many looking to the state for a solution to the problem. The government did bow to public pressure and extend the 2020 welfare grant which aims to cushion the poor against the fallout from the coronavirus pandemic. However, they held the line in efforts to contain the state’s wage bill and will only be moving ahead with a 3% proposed wage increase in government wages. Additionally:

• SA GDP revised down from 2.2% to 1.9%
• Spending on infrastructure such as roads, bridges, storm water systems and public buildings will increase from R66.7 billion in 2022/23 to R112.5 billion in 2025/26
• R111 billion for grants to support 2.8 million students
• R2 billion is allocated to Working for Fire, Working for Water and Working for Forests.

How this budget can affect you.

Higher corporate income tax collections are expected due to high commodity prices and the return to profitability for many large SA businesses, particularly in the finance and manufacturing sectors. The tax revenue has now been revised from R83.5 billion to R1.68 trillion.

The government will use the additional revenue to increase spending in health, education and local government free basic services, infrastructure, and security and safety. Notably and concurrently, the government will narrow the budget deficit, and address the fiscal and economic risks posed by Denel, Sanral and Transnet, and additionally municipalities can expect to receive support to cover cost increases in free basic services.

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In Conclusion

Overall, this budget ties in with the 2022 Budget’s initial aims to continue to rebuild the economy, try to rehabilitate public finances and continue to aid the recovery from Covid-19. That said South Africa has benefitted from the commodities boom, but the global economic slowdown and increased power cuts continue to compromise the recovering economy, but hopefully will not compromise continued growth and investment in South Africa.

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