South Africa’s R22.3 billion hole

South Africa’s tax revenue is far below Budget estimates, with the government facing a shortfall of R22.3 billion.

This was revealed in the Medium-Term Budget Policy Statement, which Finance Minister Enoch Godongwana presented on Wednesday, 30 October.

In his statement, the minister revealed that, on the revenue side, tax collection for 2024/25 is expected to be R22.3 billion lower than what the Treasury estimated in February this year.

In addition, he said that, over the next two years, the main budget revenue estimate has also been lowered by R31.2 billion.

“In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend,” he said.

“Lower revenue also means that we cannot, within the envelope, accommodate all of the demands on the fiscus.”

Godongwana said difficult trade-offs in all spheres of government will have to be made.

However, he said that by sticking to its debt-reducing strategy and confronting these trade-offs, the government can create the necessary conditions for a fast-growing economy that facilitates employment. 

Despite the weaker revenue, Godongwana said the government’s most immediate spending pressures will be addressed.

Compared to the Treasury’s estimates in February this year, expenditure for 2024/25 will increase mainly for the following:

• Rollovers from the previous financial year to the value of R2.1 billion
• R2.7 billion expenditure that was announced at the time of the main budget, mainly for the Covid-19 social relief of distress grant
• Unforeseeable and unavoidable expenditure of R2.1 billion, mainly for disaster relief
• A special appropriation bill that mostly covers SANRAL’s obligations related to phase 1 of the Gauteng Freeway Improvement Programme. A large part of this appropriation is made possible by the Gauteng Provincial Government honouring its R3.8 billion contribution to the debt this year

The minister said that, over the medium term, consolidated expenditure is expected to increase from R2.4 trillion in 2024/25 to R2.8 trillion in 2027/28. 

The minister also outlined additional funding requests for various state entities.

He proposed additional funding for Parliament and the Office of the Chief Justice, mostly to enhance operational capacity in the running of these important institutions.

In addition, with the Local Government Elections due in 2026, funds have been set for the Independent Electoral Commission to conduct smooth elections.

He also proposed additional funding for the South African Revenue Service.

“This is to help the organisation build on its successes by driving programmes to enhance the efficiency of revenue collection whilst enhancing compliance and facilitating legitimate trade,” the minister explained.

“We are also implementing initiatives like early retirement, not to merely reduce the size of the workforce, but also to introduce younger talent to the public service.”

In his statement, Godongwana also addressed the government’s significant debt problem. The National Treasury anticipates that government debt will reach more than R6.05 trillion, or 75.5% of GDP, in 2025/26.

“We know that our debt is unsustainable because debt-service costs have become the largest component of our spending, and it is rising faster than economic growth,” he said.

The minister confirmed that debt-service costs will reach R388.9 billion in the current financial year. This means that for every one rand of revenue the government raises this year, 22 cents are paid in debt-service costs.

“To deal with this problem, we have taken difficult steps to reduce the budget deficit. We have restrained spending and maintained stable tax collection,” Godongwana said.

As a result of these measures, the government achieved a primary budget surplus in 2023/24, for the first time in 15 years. This surplus is crucial to the government’s goal of stabilising its debt, but the minister emphasised that it is not a “pot of money”. 

“Rather, it is the difference between what government spends, excluding debt-service costs and what government collects in revenue,” he said.

Over the medium term, the main budget deficit will decline from 4.7% of GDP in 2024/25 to 3.4% in 2027/28, with the primary budget surplus rising to 1.8% of GDP