Budget 2023
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Government revenue under pressure

Cape Town - There are surely very few people in South Africa that envy Finance Minister Pravin Gordhan’s job and, despite criticising him, very few people would want to take it over. The National Budget speech is usually a balancing act, and this time around more difficult than ever.

In addition to it being an election year, indications are that government revenue is decreasing, while demands for better service delivery are increasing. There is therefore very little scope for the minister to give consumers a bit of tax relief to counter the effect of rising fuel and food prices and increases in the interest rate.

State departments will be very unhappy with whatever steps he takes to save costs, while politicians will want to see much more spending during an election year. The thing to remember is that a government budget is more than a prediction of income and expenditure – it is a plan of action for government departments and whatever goes into the budget must be implemented.

PricewaterhouseCoopers (PwC) commented that estimates for government revenues in the 2013/2014 tax year have already been revised downwards by around R3bn to R895bn when the treasury announced the 2013 mini budget.

“However, a cautionary note was attached to this revised estimate in the form of a warning of uncertainties about the second half of the fiscal year. In particular, the performance with respect to VAT and excise duties was cause for concern.

“At the time, national treasury estimated real GDP growth for 2013 of 2.1%. Since then, the South African Reserve Bank (Sarb) has revised its estimate of GDP growth for 2013 downwards to 1.9%” said PwC.

Lower economic growth translates into lower consumer spending, lower VAT receipts and eventually to lower income tax.

The consumer continues to be under pressure, and the recent performance of the retail sector supports that view. Given this environment, it is expected that projected tax revenues from VAT and excise duties will be further revised downwards, predicted PwC.

While corporate tax collections for the first half of the fiscal year were robust, this is expected to come under pressure in the second half of the year as a result of the slowing economy and the effects of prolonged strikes. As a result, a downward revision in estimates of company tax revenues is expected for 2013.

Overall, it is unlikely that even the lower revised estimate of tax revenues for 2013/2014 budget year would have been reached.

The new budget

The new budget year, 2014/2015, looks set to be even worse.  The mini budget put estimated tax revenues for 2014/15 at R985bn, a slight downward revision from the 2013 budget estimate of R992bn.

This downward revision is principally due to significant decreases in the estimates for collections from dividends tax where national treasury appears to have miscalculated the impact on tax collections expected from the change from STC to the new dividend tax.

Significant downward revisions were also made in respect of VAT and excise duties, while estimates for customs duties were revised upwards by R4bn along with an upward revision of R3bn for personal income taxes.

PwC predicted that latest official estimates of tax revenues by government will be revised downwards in relation to certain of the taxes, given the slower than projected performance of the economy.

In the mini budget, real GDP growth for 2014 was forecast at 3%. However, since then, the Sarb has reduced its forecast to 2.8%. Given this scenario, the projected growth of 12% in company tax revenues and 10% in VAT revenues in estimates appears optimistic. “We think that actual collections are likely to be much lower than these estimates,” said PwC.

Budget balance

In the mini budget, the budget deficit for 2013/14 was forecast at 4.2% of GDP, more or less in line with the forecast in the 2013 budget. Given the pressure on tax revenues, this deficit may be slightly higher than forecast unless further savings in expenditure can be squeezed out.

The mini budget forecast budget deficit for 2014/15 at 4.1% of GDP. Given the expected decline in tax revenue estimates highlighted above, it is expected that government will mount a concerted effort to curtail growth in expenditure and extract further savings in order to achieve the projected decrease in the fiscal deficit, PwC said.


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