ACDP Whip and spokesperson on finance, Steve Swart, expects increased budget deficit and government debt levels given reduced tax revenue and expenditure overruns in Wednesday’s medium-term budget policy statement.
“There can be no doubt that National Treasury is facing huge fiscal pressures given lower than expected economic growth, which has resulted in reduced tax revenue.
Low economic growth has largely been caused by ongoing load shedding and severe challenges with logistics, both rail and ports, as well as reduced demand for commodities (which provided the tax windfall in 2021 and 2022).
In addition, expenditure has continued to outstrip revenue collection, which has widened the budget deficit (revenue growth was 8.7 per cent year-on-year in August, while total expenditure grew at 9.2 per cent).
The expenditure overrun has been caused partially by the public sector wage increase which was above the forecasted 1,6 per cent. This has resulted in an additional R37.5bn funding requirement. It was also assumed that the social relief of distress grant paid to about 8 million people would come to an end in March 2024. This is unlikely due to the pressing social needs and the fact that 2024 will be an election year.
A larger than anticipated budget deficit appears certain – with some commentators saying it may escalate to 5 per cent of GDP – and with national debt ballooning to over 72 per cent of GDP. Government debt is growing by R14bn per week, with debt service costs being the fastest-growing budget item.
The ACDP believes that the only long-term solution to this debt spiral is a rejuvenated economy, premised upon stabile energy provision and a vastly improved logistics network.
Finance Minister Enoch Godongwana will need to carefully balance possible solutions to the fiscal crisis, including cutting back on expenditure and increasing borrowing. The medium-term budget policy statement will provide a clearer picture of government’s commitment to fiscal consolidation and improving economic growth.
The ACDP does not support tax increases, given the financially hard-pressed situation households and businesses find themselves in. The South African Revenue Services (SARS) can potentially assist by reducing the tax gap, which is the difference between taxes legally owed and taxes collected. It is estimated that the tax gap is about R300bn, and SARS, by collecting 10 per cent of what is due, would contribute an extra R30bn to the fiscus.
The alternative to tax increases is reducing government expenditure. We believe, however, there are other ways of cutting government expenditure in ways that don’t affect service delivery, such as reducing administrative costs by amalgamating various departments and ministries. We are concerned that National Treasury is already requiring cost containment measures, which can have a detrimental impact on service delivery, including crime prevention, health, and education services.
In addition, the ACDP has always maintained that billions of rands stolen through state capture and corruption should be recovered by further capacitating law enforcement and prosecution agencies, including the Hawks, the Special Investigating Unit, and the National Prosecuting Authority (which includes the Investigating Directorate and the Asset Forfeiture Unit). Additional funds recovered can also help balance the books.
The ACDP will be closely monitoring Minister Godongwana’s plans on dealing with the fiscal pressures the country faces when he tables the medium-term budget policy statement in Parliament this coming Wednesday.”