Tax revenue may help pay for vaccines

South African revenue collections that are expected to overshoot budget estimates could take the pressure off the National Treasury to raise taxes to pay for the acquisition and roll-out of Covid-19 vaccines.

Total tax revenue for the first nine months of the fiscal year is R875.7 billion, according to National Treasury data.

While that’s 10.6% lower than the same period in 2019-20, it compares with a 17.9% shortfall projected for the full year in October’s medium-term budget policy statement.

If the trend in tax collections continue for the last three months of the fiscal year, the extra revenue could be as much as R106.5 billion, Johann Els, the chief economist at Old Mutual Investment Group, said in a note. “Should even a portion of this windfall be realised, I see no need for government to raise taxes in this case, as has been suggested as a means to fund the vaccine roll-out.”

It could cost as much as R24 billion to vaccinate 40 million people, or around two-thirds of South Africa’s population, according to the National Treasury.

The country’s biggest companies are in talks with government to help finance and facilitate the roll-out, and medical insurers are expected to pay to vaccinate their members and subsidise the cost for an equal number of non-members. In addition to raising taxes, the Treasury’s options to fund vaccines include increasing borrowings, re-prioritising existing budgets and using available cash in government’s bank accounts.

Finance Minister Tito Mboweni will announce details in the budget on 24 February, the Treasury said.

“The medium-term revenue assumptions remain optimistic, making them subject to considerable risk – especially if growth continues to disappoint,“said Bloomberg‘s Africa economist Boingotlo Gasealahwe.

“The National Treasury has built up cash balances over the last year of about R150 billion, they can draw down on those cash balances so we don’t need to issue more or tax more,” said Jeffrey Schultz, a senior economist at BNP Paribas SA. “We’ve got the funds, we just need to allocate it in the budget framework.”

However, a windfall on 202021’s revenue collection may not be enough to eliminate the need for tax hikes in coming years, with a budget deficit that’s still projected to be more than 10% of the GDP in the 12 months that start on 1 April and increasing demands on the state purse. – Bloomberg