The budget proposals delivered this week offered individual taxpayers a so-called tax incentive for solar installations made in the next tax year commencing 1 March 2023. 

When drilling into the detail is it really that much of an incentive considering that we need an urgent response to the current electricity crisis?

The tax refund is limited

Firstly, the deduction of 25% proposed is not against the total cost of the installation as alluded to. The rebate is only applied to the cost of the solar panels to a maximum of R15 000.

For example, a person buys 10 solar PV panels, at a cost of R4000 per panel (so a total cost of R40 000). That person would be able to claim 25% of the cost up to R15 000, so R10 000. 

A different person can buy 20 panels at a cost of R4000 per panel (total cost of R80 000). The calculation of 25% adds up to R20 000, but the claim is limited to R15 000. 

So before you jump into the queue for a solar installation understand the limitations. Your inverter, batteries and labor costs are not included in the rebate. Another real point to consider is that if you decide to install in March this year you will only get your refund when you submit your tax return next year. 

Who is benefitting?

So, you effectively are using your money now to help Eskom out of its crisis and waiting up to 18 months for a partial refund. This effectively turns out to be a nice short-term loan to Treasury. 

A real incentive

A far more meaningful and immediate incentive could have been a zero rating of VAT on solar panels. This would have provided an immediate discount of 15% giving us a really good reason to consider going solar now. This in turn would have had a far more immediate effect on load shedding. 

There are three aspects of a budget:

Income (GDP)

Income into our budget relies on taxes in various forms. VAT( everyone @ 15%) Income tax (only 10% of the population to a maximum of 45%) Customs and excise duties and sin taxes….. All of these pour into a pot to cover expenses…..The budget speech alluded to better than expected revenue collections resulting in a surplus of R94 billion more than a year ago. 

Expenses

To ensure that income is sufficient expenses need to be curtailed…..it’s a case of cutting the cloth to make the suite fit….Another R1 billion to SAA?

Debt 

We are apparently starting to stabilise our debt at 18% of revenue. The cost of debt is ramping at 9% per year and is the budget’s fastest growing spending item. Against a downgraded projection from treasury that our economy will grow to 0,9% there will be pressure to pay off debt. 

Bottom line is that we will be struggling along, trying to sway a probable grey listing, move up the ladder of an existing down grade in the face of load shedding to keep the wheels turning.

We need a miracle.

The State of the Nation Speech which was eventually delivered on Thursday evening presented us with some lessons on what not to do which we should take away to our own households. 

Proactive rather than Reactive

Eskom (and all other SOEs) are in crisis due to an incompetent and severe lack of planning. South Africa is now scrambling in reaction to an electricity disaster which was inevitable years ago and should have been averted with an effective plan. 

Our households face many life-changing events such as death, disability, retirement, divorce and retrenchment which can lead to a financial crisis for which we need a plan. We need to improve and develop a level of competence in understanding financial aspects that affect our households and put in place a plan to provide for to them. 

Debt is not the answer

One glaring concern in our State of The Nation is the souring debt which now amounts to trillions.

With a growth (GDP) projection at nearly zero, we cannot cover the cost of this debt. We will either have to rapidly grow the economy (difficult without electricity), borrow more money or increase taxes. So brace yourself for the budget speech. 

Households which have borrowed too much to keep their heads above water are now facing the crippling outcome of a rising cost of their debt. Options are limited to get out of this trap. Borrowing more is certainly not one of them. It’s either increasing income and/or slashing expenses. 

Don’t play the blame game

SONA pointed to the COVID pandemic, floods and protests as contributors to our crisis. Blaming is a way to divert from responsibility. 

Households which take full accountability

over their financial planning will have their resources well placed to navigate through whatever financial problems come their way. Creditors are not sympathetic to reasons and excuses when households find themselves in a financial crisis. Your precious assets are at stake. 

The sad State of our Nation is a consequence of poor incompetent leadership. We have learned some harsh lessons on what not to do which we should apply to the state of our own households.