July budget gap biggest in 14 years

SA’s budget deficit in July was the biggest since at least 2004 as weak economic growth constrains tax collection.

The economy recorded a budget gap of R95.98bn, the Treasury said in a statement on Thursday. July readings have reflected the biggest shortfall each year since 2010.

For the fiscal year to date, the accumulated deficit is R5bn less than in 2017.

The economy contracted in the first quarter and the currentaccount deficit widened, highlighting the country’s vulnerability to capital outflows.

Mining production, once the engine of the economy, has slumped, and manufacturing and consumer spending have struggled to pick up the slack.

A widening budget gap limits President Cyril Ramaphosa’s ability to boost infrastructure and social spending.

“There seems to be a persistent underperformance in corporate income tax collections, and buoyancy levels haven’t improved as much as the National Treasury had hoped because of the weak economic climate,” said BNP Paribas economist Jeffrey Schultz.

The Treasury “will have no choice but to revise up” its budget deficit forecast in its October 24 mid-term budget policy statement, he said.

The Treasury predicts a shortfall of 3.6% of GDP for the current fiscal year. The government raised the VAT rate by one percentage point to 15% — the first increase since 1993 — to try to help plug a revenue shortfall of almost R50bn.

Low business and consumer confidence, concerns about corruption and poor governance, increased tax avoidance and administrative problems at the SA Revenue Service (Sars) contributed to the shortfalls.

“VAT collections are propping up this number — in the absence of the one percentagepoint increase in VAT this year, the fiscal side of things isn’t looking particularly rosy,” Schultz said.

A panel headed by former judge Robert Nugent is probing the management and administration of Sars under Tom Moyane, whom Ramaphosa suspended as commissioner in March.