Downgrade alarm as revenue shortfall could hit R50bn
The shortfall will bump up the budget deficit and put SA’s credit rating at risk of a downgrade
With two months to go until Finance Minister Malusi Gigaba tables his medium-term budget policy statement in October, government revenue looks set to fall as much as R50bn short of February’s budget targets, bumping up the budget deficit and putting SA’s credit rating at risk of a downgrade.
With the economy now forecast to grow at less than half the 1.3% which the February budget projected for 2017, and the South African Revenue Service understood to be experiencing significant challenges, the expected revenue undershoot would be even larger than the R30bn in the previous 2016-17 fiscal year, which was the largest shortfall since the financial crisis.
Economists are crunching the numbers ahead of the medium-term budget, but PwC projects that tax collections for 2017-18 will come in R45bn below February’s budget estimates, which were themselves revised downwards. Some in the market expect the number could be substantially worse.
PwC tax director Kyle Mandy said on Friday although it was still early days, projections based on monthly data to end-June suggested the revenue picture was "far from pretty". The biggest shortfalls were projected to be in personal income tax and value-added tax collections. This demonstrates how badly consumers are struggling and reflects high unemployment and low wage inflation.
Gigaba has committed the government to sticking with the fiscal consolidation path pledged. While he can plan for spending cuts and/or tax hikes to plug revenue gaps in the next fiscal year, there is little he can do in the current — ending on March 31 2018 — making it likely that the budget deficit will come in higher than the 3.4% projected in February. If economic growth does not improve, tax collection in the medium term will fall short, putting at risk the government’s commitment to stabilise debt by 2019-20.
Treasury deputy director-general Ismail Momoniat declined to comment and said an update on revenue collection would be provided in October.