Taxman’s fat purse raises hope for credit rating relief
Budget deficit target within reach as tax collection tops R1-trillion
SOUTH Africa’s finances are in better shape, at least when it comes to tax collection, which for the first time has topped R1-trillion and means that the country has a better chance of averting a credit rating downgrade.
National Treasury Director-General Lungisa Fuzile said on Friday that a target to reduce the national budget deficit to 3.2%, which sceptics labelled as ambitious, is likely to be achieved following better-than-expected tax revenue collection.
Narrowing the budget deficit is key to attaining better interest rates on debt and therefore reducing South Africa’s cost of borrowing. The reduction in the budget deficit is also a key element that ratings agencies monitor closely in the build-up to a ratings review.
South Africa is teetering on the brink of a downgrade of its credit rating by Fitch and Standard & Poor’s to subinvestment grade, and the government, business and labour sectors are working hard to avert it.
Fuzile said the reduction to 3.2% in the budget deficit would be material for public finance management be- cause if that outcome was achieved between this year and next, the country’s public finances will switch from a primary deficit to a primary surplus. This is the difference between noninterest expenditure and taxes.
He said the difference this year was a deficit of R22.6-billion, but it was projected to swing to a R15.4-billion surplus next year.
Fuzile said it was only when the primary balance turned positive that “you can decidedly say you are stabilising your debt. The rate of change in your debt begins to stabilise.”
South Africa’s debt is projected to rise to 50% of GDP but to taper off over the next two years.
But the government is still in a tight spot because GDP this year is forecast to be 0.9%, which will not be enough to fund all government projects, Finance Minister Pravin Gordhan said at the South African Revenue Service briefing on Friday.
Despite the fact that the government had maintained an expenditure
BRAVE FACES: From left, Deputy Finance Minister Mcebisi Jonas, Treasury Director-General Lungisa Fuzile, Minister of Finance Pravin Gordhan and SARS commissioner Tom Moyane in Pretoria on Friday ceiling over the past four years, the shortfall in taxes had resulted in a persistently large budget deficit. The deficit, among other things, was exacerbated by a bloated public sector wage bill.
Gordhan said: “We need to inculcate a culture of efficiency in our approach to spending.” He said scepticism over whether the government could achieve that was legitimate.
“Too many in government continue to defy decisions of cabinet about cost containment, not putting unnecessary advertisements in newspapers, buying expensive cars in provinces and municipalities.
“Hopefully we will begin to develop a momentum within government to monitor all of those misdemeanours and take much firmer action, including perhaps withholding certain transfers from government — if there’s abuse of public funds in the way we might have seen it in the past.”
The good news about the projected narrowing of the budget deficit comes against a backdrop of an 8.5%, or R200million, improvement in tax revenue collection to a record-breaking R1.07trillion for the 2015-16 tax year, according to figures presented by SARS on Friday.
SARS commissioner Tom Moyane said collections in VAT and corporate income tax had increased, but the collection of R389.3-billion in personal income tax was 1% lower than projected. Corporate income tax collections were R193.5-billion, R1.9-billion more than the revised estimate in the 2016 budget. VAT collections were R280.8-billion.
Fitch declined to comment on Friday on the tax collection numbers or political developments in the country. Moody’s and S&P were unavailable for comment.
The disagreements between Gordhan and Moyane over a restructuring plan at SARS did not appear to affect the revenue service’s efficiency.
Gordhan, when asked about his relationship with Moyane, said it was a work in progress. “I’m of the firm view on two things: we must behave like professionals and do that which is necessary in the national interest . . . secondly one of the lessons South Africa is learning at the moment is the importance of functional, well-run, credible institutions.”
The dispute between Moyane and Gordhan followed the dismissal of Nhlanhla Nene as finance minister in December. More recently, allegations have emerged that the Gupta family have tried to influence cabinet appointments. And this week the Constitutional Court ruled that President Jacob Zuma and the National Assembly had failed to uphold the constitution in relation to the funding of Zuma’s private home at Nkandla.
Two weeks ago, Deputy Finance Minister Mcebisi Jonas said he had been offered the finance minister job by the Gupta family. On Friday, when asked about the impact of current political developments on South Africa’s ratings outlook, Jonas said the Treasury and the government broadly were resolute in “sticking to the targets that we have set for ourselves and we will respect [those], irrespective of what the environment looks like politically”.
He added: “Political stability and stability in general and certainty is a critical element . . . there is a lot of work already that we’re doing to ensure that we strengthen and create a more certain environment. There’s work that we do with business and there’s a whole range of discussions with different clusters in government to try to deal with those regulatory bottlenecks and solve those policy areas that are still uncertain.”
Gordhan said: “We must wait to see how the [Constitutional Court] judgment [against President Jacob Zuma] ripples through our political economy. Where there is policy uncertainty nobody is going to invest.”
Too many in government continue to defy decisions about cost containment