Which way the windfall goes
That’s what SA wants to know as Mboweni unveils spending plans after good tax news
● Finance minister Tito Mboweni will table a budget on Wednesday that is not expected to see much, if anything, in the way of tax hikes — but will be all about the better-thanexpected tax collections of recent months and whether the minister plans to spend or save that windfall.
The market will be watching closely to see whether the government stays on the path of fiscal consolidation it outlined last year to contain SA’s spiralling public debt level, which Mboweni warned could see SA face a sovereign debt crisis within a few years if action was not taken.
It will be watching, too, to see whether the government plans to reduce the sizeable amount of borrowing it’s been doing in the bond market at its weekly auctions, a move that could send the right signals and help to bring down the yields, or interest rates, on government debt.
And though market players are expected to be supportive of higher spending on a vaccine rollout, they will be looking at whether the government sticks to its attempt to cut the public sector wage bill as a bellwether signal of its commitment to cut its debt in coming years.
With the economy ravaged by the coronavirus and the lockdown, Mboweni in his October medium-term budget forecast the economy would contract by 7.8% last year, recovering to grow at just 3.5% this year. Revenue was projected to fall a massive R312bn short of last February’s budget targets and the budget deficit was projected to almost double to 15.7% of GDP.
But latest Treasury figures, for the first nine months of the fiscal year, indicate that tax collections have performed better than October’s bleak forecasts and that the shortfall could end up as low as R200bn, depending on how the economy and taxes perform in the last three months of the fiscal year.
However, with economists not expecting the economy to stage a robust recovery over the next three years in the absence of strong reform action by the government, there is still concern that SA could head into a debt crisis, with the revenue “windfall” doing little to change the debt trajectory — and especially not if Mboweni does not stick to the fiscal consolidation plan, which requires large spending cuts and relies heavily on an effective public sector wage freeze to R160bn over the next three years.
PwC tax policy lead Kyle Mandy said all taxes have performed better than budgeted, with mining profits contributing to higher corporate income tax collections and pentup consumer demand driving higher VAT collections, though he was “not 100% sure” why personal income tax collections have done well.
Though October’s budget relied mainly on spending cuts, it also pencilled in R40bn of tax hikes over the next four years, starting with R5bn in this coming 2021/22 fiscal year.
But economists say this may now not be necessary and that proposals such as wealth taxes may well be off the table for now.
Liberty economist Tendani Matshimuli said any personal tax hikes or a failure to give relief for fiscal drag would further burden middle- and upper-income consumers, many of whom were already affected by salary cuts or no bonuses last year.
Mandy said he would rather see the tax authorities focus on closing the “tax gap” — the gap between what taxpayers are supposed to pay and what is collected — which he estimates could be as high as R200bn. The Davis committee on tax has submitted a report on closing the gap, which Mboweni could make public with the budget.
The budget will also be looked to for an update on the details on how much of the R500bn coronavirus stimulus and relief package, which President Cyril Ramaphosa announced in April , has actually happened.
HSBC economist David Faulkner said in a note: “Our long-term fiscal concerns remain undimmed. Yet the near-term positive fiscal surprises … do provide a welcome opportunity, relieving near-term fiscal stresses and risks, particularly if the government can deliver on the fiscal consolidation plans, spending cuts and wage freeze outlined in the [October medium-term budget].
“But on its own, fiscal reform cannot deliver enough. Faster growth is also needed and for as long as potential growth remains stuck at about 1%, the long-term debt arithmetic will remain dispiriting.”
Economists have called for structural reforms to be implemented urgently, particularly in electricity and broadband spectrum.
They have cautioned, too, that if the government does not act to make the regulatory environment more friendly for investment in the two sectors that have been the biggest drivers of economic recovery in recent months — mining and agriculture — SA will again lose out on the boom conditions in those sectors, as it did in the last commodities boom.
since its low point in April 2020, with active employment in October being statistically indistinguishable from February pre-pandemic levels,” wrote researchers Ihsaan Bassier, Joshua Budlender and Rocco Zizzamia.
“This is a startling result given the scale of the employment loss in April.”
This was the third wave of the NIDSCRAM survey, which is led by a group of 30 social scientists at universities across SA.
It provides a unique level of detail on communities and how they have been affected — economically, socially and in health terms — by successive waves of the coronavirus crisis.
However, it is not representative of the population as is the official labour force data from Stats SA, which samples 30,000 households each quarter whereas NIDS-CRAM draws on a panel of just 6,000.
Economists speculate it may have overestimated the extent of the losses in the second quarter as well as the extent of the gains by the fourth quarter.
Stats SA’s official fourth-quarter labour force numbers are due out only this week and will be closely watched to see whether they support the NIDS-CRAM survey trends.
Stats SA reported last year that 1.7-million fewer South Africans had jobs in the third quarter compared to the same quarter in 2019, before the pandemic.
Just 543,000 of the 2.1-million jobs lost in the second quarter came back in the third, the agency reported, with SA’s unemployment rate rising to 30.8% — one of the world’s highest.
The NIDS-CRAM and Stats SA numbers won’t yet include the impact of the employment stimulus package which President Cyril Ramaphosa said in his October economic recovery and reconstruction plan would create 800,000 job “opportunities”.
Ramaphosa said in his state of the nation address last week that by the end of January 2021 more than 430,000 opportunities had already been supported through the stimulus, with a further 180,000 in recruitment.
And he promised that: “We will continue to support employment for as long as it is necessary while the labour market recovers, even as we work to promote stronger and more resilient growth in the private sector.”
With the R13bn that was allocated to the Presidential Employment Stimulus already spent, finance minister Tito Mboweni’s budget this week is expected to allocate further funds over the next three years to the employment programme, which Ramaphosa costed at R100bn when he announced his supposedly R500bn Covid stimulus and relief package in April.
The “opportunities” are mostly in the form of temporary jobs and subsidies. In a report last week the presidency said more than 300,000 teachers’ assistants had been hired at a cost of R7bn, with a further R600,000 going to support early childhood development and hire social workers.
Almost R2bn has gone to expand existing public employment environmental programmes; among other projects are support for subsistence farmers and for SA’s creative and cultural sectors as well as maintenance work on provincial roads and municipal infrastructure.
This is a startling result given the scale of the employment loss in April — NIDS-CRAM survey