Lower growth hits revenue collection
Revenue collection for the first three months of the year is slightly below expectations, figures from the Treasury show, raising concerns of another revenue shortfall for 2018/2019.
But while revenue shortfalls for the past four years amounted to R100bn, few economists expect this trend to continue, although weak growth is still likely to undermine tax revenues as projected in February.
The shortfalls have been both a function of lower than expected growth and weakness at the SA Revenue Service (Sars), which has been at the centre of allegations of poor management and corruption.
Numbers for the three months ending June showed that Sars had so far collected 22.5% of the budget estimate. A Nedbank note issued early this week said that the numbers "raised the risk that the government deficit may yet again disappoint in this fiscal year. The latest monthly budget numbers for July indicate that especially personal income tax and company tax revenue [are] falling behind schedule. This would be consistent with weak economic data seen year-to-date."
Co-author of the note Walter de Wet said while certain tax categories such as corporate income tax had come in chunky inflows, even with the numbers seasonally adjusted, compared to monthly patterns since 2011, these categories still lagged.
Citibank economist Gina Schoeman said while these were early days, indications were of a shortfall of around R19bn in personal income tax and R8bn in corporate income tax versus the full-year estimates, which reflected weak demand and low growth.
The question also remained whether the Treasury’s estimate of tax buoyancy — the rate at which tax revenue grows in line with GDP growth — was realistic, she said. While the Treasury has assumed that tax revenue rises by 1.5% for every 1% in GDP growth, it has stood at 1% for the past year.
The concerns around revenue collection arise in the context of a constrained fiscal picture in which the growth outlook is uncertain, the financing demands of state-owned companies are not yet resolved and the wage agreement with public servants has overshot the budget by R30bn.
Sanlam Investment Management economist Arthur Kamp said that based on current information he did not expect a large revenue shortfall and predicted the main budget revenue shortfall will be around 0.2% of GDP or R9.5bn, which was unlikely to cause concerns among ratings agencies, for instance.
"For now we are probably OK. The bigger worry is whether fiscal policy is sustainable in the long term.
"Budget trends show a significant shift to consumption spending away from capital spending. For now the Treasury is holding the line but in the longer term we need something decisive to happen," Kamp said.
For a decisive shift to occur one or more of the following are needed, according to Kamp: "Stronger economic growth, a cut in government spending relative to GDP and a shift towards capital expenditure, away from consumption spending. On the last point, this means we need the government to contain the government wage bill."