Caution rules for revenue windfall

● The Treasury will use any unexpected revenue boost to reduce borrowing, not increase spending, the head of the budget office, Edgar Sishi, said on Friday.

Sishi, speaking in a Sunday Times Live online dialogue, said the Treasury is also determined to avoid the mistakes of the past, when it committed to permanent spending based on temporary revenue overruns.

His comments came after the South African Revenue Service released final tax collection figures for the fiscal year that ended on March 31 that showed the revenue shortfall — at R175bn — was not nearly as bad as the Treasury’s worst-case projection in October last year of R312bn.

And with the commodity price boom still boosting the economy, economists now believe tax collections could again surprise on the upside in the current year — which could see the government come under pressure to go slower on its planned spending cuts.

However, said Sishi: “These are not ‘savings’. This is a shortfall that’s less severe than what was thought in October, but much more severe than we thought either in February 2020 and more severe than at the time the lockdown was initially announced … The result of having a less-severe shortfall is not that you’ve got more money. The result is you have less to borrow.”

We were caught with our pants down a few years later

Edgar Sishi

Acting Deputy Director-General: Budget Office

Sishi said the Treasury was taking a longterm view and had learnt its lesson about overoptimism.

“Prior to 2008, particularly in 2007, there was a big bump in revenue as a result of an improvement in South Africa’s terms of trade, the commodity supercycle, the price of gold and other commodities that South Africa produces.

“It turned out to be temporary … But in response to that temporary increase we increased spending, particularly in the permanent areas such as the wage bill. And we were caught with our pants down, so to speak, a few years later.”

The government’s total debt is heading towards R5-trillion over the next three years, with the debt-to-GDP ratio expected to get close to 90% even with the very large budgeted spending cuts. The government is spending about R300bn a year — more than the health budget — just to service the debt.

But Treasury director-general Dondo Mogajane told the panel the Treasury would stand firm in its management of SA’s public finances.

Asked why the social grants budget was set to be cut in real terms over the next three years (despite the pandemic), Mampho Modise, the deputy DG in charge of public finance, said the Treasury had protected the grants in recent years even when all other departments were having their budgets cut.

But the grants budget could not continue to be the only one not cut in real terms. The R350bn Covid special relief of distress budget, extended this year at a cost of more than R2bn a month, is due to expire on Friday.