Temporary windfalls no reason for a free lunch from expenditure thrift
Studies show fiscal consolidations that focus on expenditure cuts as opposed to tax hikes tend to have a less detrimental effect on the economy
Despite the setback to the SA economic recovery because of the Covid-19 second wave and load-shedding, a few unexpected — albeit possibly temporary, positive developments would have made the National Treasury’s February budget preparations somewhat less tense.
First, the boom in SA’s export commodity prices, along with the better-than-expected initial GDP recovery, have provided an unexpected tax revenue windfall. As an example, royalties and tax payments by platinum group metals (PGMs) and gold miner Sibanye-Stillwater surged more than 200% to R7.1bn in 2020. Overall government tax revenue should still decline by a worrying 10%-11% in 2020/2021, but this will beat the dire estimate at the time of the October 2020 budget statement by up to R100bn (2% of GDP). Linked to the positive commodity story is a sharp upgrade to global growth prospects thanks to the vaccine rollout and the looming huge (additional) US fiscal stimulus package. This should support the current account and...
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