The government’s main budget deficit ballooned to R14.6 billion in September, over triple what it was a year earlier. It resulted in a deficit for the first six months of the financial year of R253 billion.
The release of this data on the same day the Finance Minister will make his Medium-Term Budget Policy Statement (MTBPS) emphasises the financial predicament the country is in.
The Treasury on Monday reported that the deficit was R14.6 billion in September from R3.3 billion a year earlier,
This resulted in the main budget deficit for the first six months of the government’s financial year growing to R253 billion – a year-on-year increase of 54%.
As a result, Finance Minister Enoch Godongwana will probably outline a significant tax shortfall during the MTBPS and rapidly growing expenditure.
Total revenue in the first six months of the financial year was down 0.2% year-on-year, while gross tax revenue was up just 2.4% annually. This is far below the Treasury’s full-year growth target of 6%.
Total expenditure growth is running 9.2% higher than at the same time last year – far above the Treasury’s full-year target of 1.5%.
Godongwana has tough choices to make in addressing this rapidly growing deficit, with spending cuts unlikely with an election coming up.
There is also no clear way for the government to raise revenue, as South African corporations and individuals are already heavily taxed.
SARS Commissioner Edward Kieswetter has warned that tax increases will hurt revenue collection due to a corresponding rise in non-compliance.
Thus, the only real option available to Godongwana is to make insignificant spending cuts and increase the government’s borrowing to finance the deficit.
However, this is dangerous as the country already has a substantial debt burden of R4.5 trillion and skyrocketing debt-servicing costs.
In August, the Treasury increased government borrowing by over R2 billion a week to a total of R14 billion per week.
Renowned economist and Efficient Group director Dawie Roodt told the SABC that the Finance Minister will have to make his Medium-Term Budget Policy Statement (MTBPS) in an extremely difficult context.
“The context is that the fiscal accounts are in very deep trouble, the debt levels have reached record highs, and the state just keeps on borrowing. Revenue is under tremendous pressure for various reasons, and spending is higher than expected,” Roodt said.
“In the meantime, the South African economy has been doing quite badly, and there is an election around the corner.”
Finance Minister Enoch Godongwana is unlikely to cut spending significantly or raise taxes as both of those options are politically unpopular.
The only real option that Godongwana has is to borrow more money and get the country into even deeper trouble, said Roodt.
“It is called a debt spiral or fiscal cliff,” Roodt explained. “If you keep on borrowing money, then your debt increases, which is already R4.5 trillion. We cannot keep on borrowing.”
“Not only are we borrowing a lot of money, we spend this money on current expenditure. It is like borrowing money on your mortgage to buy groceries. That is very irresponsible.”
“If we continue on this trajectory, we are going to get into trouble, and we are heading for some sort of financial crisis,” Roodt said.