R50bn tax deficit a rating risk

WITH two months to go until Finance Minister Malusi Gigaba tables his medium-term budget policy statement in October, state revenue looks set to fall as much as R50-billion short of February’s budget targets, bumping up the budget deficit and putting SA’s credit rating at risk.

With the economy now forecast to grow at less than half the 1.3% projected for 2017 in February, and the SA Revenue Service understood to be experiencing significant challenges, the expected revenue undershoot would be even larger than the R30-billion in 2016-17, which was the largest shortfall since the financial crisis.

Economists are crunching the numbers ahead of the mediumterm budget, but PwC projects that tax collections for 2017-18 will come in R45-billion below February’s budget estimates, which were themselves revised downwards. Some expect the number may be worse.

PwC tax director Kyle Mandy said at the weekend although it was still early days, projections based on monthly data to endJune 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 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 before 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 his commitment to stabilise debt by 2019-20. — DDC