The government faces a R209 billion shortfall in tax revenues for the three years ending March 2020 relative to what was forecast earlier this year, Finance Minister Malusi Gigaba indicated in fiscal documents released on Wednesday.
Such a big miss on forecast revenue could see the country’s credit rating placed under huge pressure and could lead to further credit ratings downgrades.
In April, S&P Global and Fitch Ratings both cut the country’s ratings to ‘junk’ status.
“The National Treasury has generated three alternate scenarios quantifying some of the risks to the baseline economic forecast. Two scenarios involve downgrades to the local currency debt by global ratings agencies,” the National Treasury said.
“A presidential task team is considering a range of steps to bring the public finances back onto a sustainable path. Announcements will be made at the time of the 2018 Budget.”
Gigaba today delivered his first Medium Term Budgetary Policy Statement (MTBPS) in Parliament and it reflected a bleak state of economic affairs.
See below for Gigaba's full MTBPS speech
Finance Minister Malusi Gigaba presented the Medium Term Budget Policy Statement in Parliament.
“We are giving an honest view of the challenges facing our country. It is not in the public interest, nor is it in the interest of government, to sugarcoat the state of our economy and the challenges we are facing.”
“Over the past five years, despite a declining rate of economic growth, tax revenue continued to grow more rapidly than GDP. This trend came to an abrupt halt towards the end of 2016/17 as South Africa entered a recession.”
“Despite substantial tax increases over the past two years, tax revenue growth has barely exceeded the low rate of economic growth.”
Local revenue buoyancy appeared to have run its course, the MTBPS document issued today said.
“The National Treasury projects a revenue shortfall of R50.8 billion in 2017/18. Lower revenue this year carries forward, and gross tax revenue is projected to fall short of the 2017 Budget estimates by R69.3 billion in 2018/19 and R89.4 billion in 2019/20,” the document added.
Tax revenue is projected to fall short of the 2017 Budget estimate by R50.8 billion in the current year, the largest under-collection since the 2009 recession. For the year ending March 2017, the government’s tax revenue shortfall was R30 billion when compared with the 2016 Budget Speech.
“All tax instruments are performing poorly, with large shortfalls for personal and corporate income tax, and dividend withholding tax,” the National Treasury said.
As a result of the revenue shortfalls, the government’s consolidated budget deficit for 2017/18 is expected to shoot up to 4.3% of GDP, compared with a 2017 Budget estimate of 3.1%.
The sharp spike in the government budget deficit won’t be well received by investors and rating agencies.
“The main budget deficit, which determines government’s net borrowing requirement, will be 4.7% of GDP this year,” National Treasury said.
The government is forecasting a budget deficit of 3.9% for the fiscal year ended March 2019 compared to 2.8% at the time of the 2017 Budget Speech. The budget deficit for the fiscal year ending March 2020 is expected to stay at 3.9%.
“Over the past four years, government has followed a path of measured fiscal consolidation, aiming to stabilise the debt-to-GDP ratio by reducing spending and introducing tax increase. But debt has continued to rise as a share of GDP as economic growth rates have declined. This year, a sharp deterioration in revenue collection and further downward revisions to economic growth projections have significantly eroded government’s fiscal position.”