Lesetja Kganyago’s tax warning

South Africa’s central bank chief cautioned the government against relying on windfall taxes from high commodity prices to help service state debt and fund other short-term commitments.

The tax take in Africa’s most industrialised economy is on course to exceed estimates for a third consecutive year, with the National Treasury allocating 55% of the overrun toward reducing the budget deficit and borrowing requirements through the fiscal year ending March 2024.

“The cyclicality of commodity revenues makes them an inappropriate source of continuous funding to meet short-term obligations,” Lesetja Kganyago said during a panel discussion on Thursday.

“Every time there is a commodity boom, it doesn’t take us long to start a conversation whereby we pretend that we are richer than we actually are.”

South Africa is the world’s biggest producer of platinum and manganese and a major exporter of gold.

An index of industrial metals tracked by Bloomberg shows the rally in commodity prices spurred by China’s gradual reopening at the end of 2022 is fading.

While demand for commodities including iron ore, coal and manganese has remained strong, South African shipments are curbed by rail bottlenecks.

At the same time, production of particularly key platinum-group metals has also been hard hit by rolling power outages.

The Treasury, which expects tax gains from elevated prices to dissipate, has said, “matching new spending with permanent revenue sources is prudent and responsible fiscal policy.”

Even so, investors and analysts have raised concerns about the government facing pressure to implement politically popular but unaffordable policies, including the introduction of a basic income grant, before next year’s elections.