Enoch Godongwana’s R82 billion headache

The South African Revenue Service’s (SARS) tax revenue is falling short of 2023 projections, which could see the country face a massive budget deficit at the end of the year.

Economists at the Bureau for Economic Research (BER) said South Africa’s fiscal situation is increasingly concerning “as tax revenue undershoots and government spending exceeds earlier expectations”. 

According to the National Treasury, South Africa’s monthly budget balance fell back into a larger-than-expected and record monthly deficit of R143.8 billion in July, following a R36.6 billion surplus in June.

“The fiscal balance is being squeezed from both the revenue and the expenditure side,” the BER said. 

In the first four months of the current fiscal year – April to July – gross government tax revenue increased by only 0.8% year-on-year. 

This compares with the February budget expectation for an increase in the entire fiscal year of 5.6%. 

“If the current pace of underperformance in tax collections is sustained through the entire fiscal year, gross tax revenue will be R82 billion – 1.2% of GDP – lower than the February projection.”

At the same time, government expenditure is outpacing budget expectations, increasing by 9% year-on-year from April to July.

This is significantly higher than the February budget forecast of a 1.5% increase for the entire fiscal year. 

“These trends support the view that the 2023/24 main budget shortfall will vastly outpace the 3.9% of GDP forecast in the February budget,” the BER said.

In response to this situation, the National Treasury has proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap.

The Sunday Times recently reported that the National Treasury has sent a letter to provinces asking for significant expenditure cutbacks. 

The measures include a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.

“The spending cuts have been widely welcomed and indicated that the government had ‘run out of money’ and faced a ‘debt trap’ as growth had stalled,” The Sunday Times said.

In response to questions from Reuters, the Treasury said the cost-cutting plan was “due to the weak performance of the economy and the shortfalls in revenue collection”.

The National Treasury said it would work with all departments, provinces and public entities to identify further measures to consolidate budgets since “the measures articulated in the letter will not by themselves fully restore fiscal sustainability”.