Finance Minister Enoch Godongwana warned that tax increases are coming in next year’s main Budget Speech as the extent of fiscal consolidation is greater than expected due to declining tax revenue and rising expenditure.
Godongwana issued this warning during the Medium-Term Budget Policy Statement (MTBPS) on 1 November.
The in-year revenue outlook is significantly weaker than previously projected due to a sharp fall in corporate tax collections and higher-than-expected VAT refunds.
In the context of a weak domestic outlook, future revenue collection remains susceptible to negative shifts in the global economy.
Compared with the 2023 Budget, the gross tax revenue estimate for 2023/24 was revised down by R56.8 billion.
The lower estimate is largely due to downward revisions to near‐term tax base growth projections, falling corporate tax collections and lower net VAT collections.
This will be needed to fund the government’s growing budget deficit, which has risen to 4.9% of GDP in 2023/24 compared with the estimate of 4% of GDP in the 2023 Budget.
“In the context of persistently low economic growth, the government’s fiscal strategy remains focused on consolidating the public finances to narrow the budget deficit, stabilise public debt and ensure fiscal sustainability,” the Minister said.
“Fiscal policy will pursue a balanced approach that includes spending restraint, revenue measures and additional borrowing.”
Given the extent of fiscal consolidation required, the Finance Minister said he would propose tax measures to raise additional revenue of R15 billion in 2024/25 in the 2024 Budget.
It is unclear which taxes Godongwana will increase or whether a new tax will be introduced.
In an interview after the MTBPS with Netwerk24, the Minister said that tax increases could be avoided if SARS manages to collect additional revenue through enhanced tax compliance.
“If we handle our tax collection efficiently, we may not have to raise taxes. We may save you,” Godongwana said.
The Minister also emphasised that South Africa’s deep and longstanding fiscal challenges are rooted in a long‐term pattern of low economic growth, and its revenue will only recover once the economy begins to grow.
He said government spending has exceeded revenue since the 2008 global financial crisis, resulting in persistent large budget deficits.
“Moderate budget deficits are not cause for concern. The difficulty arises when deficits are too large for too long, requiring ever‐higher levels of borrowing that are unmatched by improvements in public services,” he said.
“This is the problem facing South Africa, and it is reflected in debt‐service costs that consume an ever‐larger share of public resources and shrinking fiscal space to respond to shocks.”