EDITORIAL: A credible budget and clarity on Eskom debt is needed

This week’s budget speech comes at a particularly difficult and uncertain time for SA’s economy, in a global environment which is itself uncertain and unfriendly. That makes finance minister Enoch Godongwana’s job extremely challenging, but also extremely important.

Investors and businesses, but also consumers and his own colleagues, will be looking not only to the numbers the finance minister presents, but also to the tone he strikes. He will need to be ruthlessly realistic, otherwise he will not be credible. And he must, above all else, be credible.

He also needs to find ways to boost the country’s confidence, otherwise this budget will simply add to the negativity and despair that the power crisis, among the other crises in government, have driven.

Electricity will be the budget’s big theme. The Eskom debt restructuring has been promised by the government for at least four years and the minister cannot keep fobbing us off with high-level commitments and broad-brush signals. He said in October’s medium-term budget that the plan was to take up to two thirds of Eskom’s almost R400bn of debt off its balance sheet. Now we need to see numbers, modalities and timelines.

It matters to the bond holders and lenders who hold Eskom’s debt. It matters too to Eskom itself, which desperately needs to start investing in the new transmission and distribution infrastructure needed to support more private sector power — but hasn’t the balance sheet or the cash to do so. And, of course, it matters to taxpayers, who are dishing out more than R23bn a year to Eskom via the budget, and to households and businesses.

However, what we do not want to see is an Eskom debt restructuring that just perpetuates the problem. Godongwana has said he will do the deal only if there are conditions in place that ensure Eskom will not be back with the begging bowl.

How he will achieve that is a big question, given all the issues with costs, tariffs, nonpayment and power cuts that prevent Eskom from being even remotely financially sustainable. But if the minister were to come to the budget with a real commitment from Eskom and the government to tackle those issues, it could be a huge confidence booster. Some economists have calculated that the public balance sheet could even improve as a result of the debt restructuring, if it were done right.

The minister also surely has to provide some relief for households and businesses, especially smaller businesses, who are suffering most from the power crisis. To the extent that he can within a limited spending envelope, it makes sense to deal with the various diesel issues. The president has promised incentives for rooftop solar. It would make sense to route those through the tax system. It also must be worth looking at subsidies that could provide backup power in some form even for those businesses and households that fall below the tax threshold.

The more private power comes on to the grid, the better it will be for all of us. Equity is important at a time when larger businesses and more affluent households can afford to invest in backup power, but smaller poorer ones cannot. Equalising the rebate for diesel that goes into generators also makes sense — Eskom gets the rebate and businesses with private generators should too. Giving more money to Eskom to pay for diesel is a more difficult one. But if the minister agrees to it, that too should come with conditions. The same goes for any money laid out to bail out ailing state-owned entities, of which we fear there will be more.

Electricity is the clearest threat to SA’s economy and ultimately to its public finances too. The minister needs to give clear signals that he and the government are committed to tackling the crisis, but he also needs to give clarity on some other issues weighing on the public finances. The basic income grant is one. The social relief of distress grant is being extended to 2024 but beyond that there is a vacuum, which Godongwana needs to address honestly. Likewise the public sector wage bill, where it is no good pretending that unions won’t win more than the minister has budgeted for.

This won't be a tax budget, with little change expected, but the government has committed to further reductions in the corporate income tax rate and it will be a good signal if Godongwana underlines that.

The numbers themselves will be important. Confidence comes only from credible numbers. The minister is lucky with revenues, which will again come in way higher than last February’s estimates thanks to the commodities boom and last year’s better-than-expected growth. That should help to ensure the deficit and debt targets pencilled in last year are met or even improved on. How he budgets for the medium term will be the issue.

With Eskom and Transnet weighing on growth, he will have to take a realistic view of the rather bleak growth outlook and what that means for the public finances. He will need also to be as prudent as possible given the uncertain outlook, globally and locally. Ideally though, he will pull at least some kind of a rabbit out of the hat to inspire some confidence.