Following a strong showing in the first half of the 2022/23 financial year, the National Treasury has revised up the country’s tax revenue collection by an estimated R83.5 billion.
In the Medium Term Budget Policy Statement (MTBPS) delivered by Finance Minister Enoch Godongwana on Wednesday, the National Treasury said the good revenue collection was on the back ofbroad-based recovery in corporate tax collections during this period.
This was despite previously elevated commodity prices beginning to wane.
The department said the recovery in corporate tax collections “bodes well for receipts over the remainder of the fiscal year”.
However, it warned that there were significant downside economic risks to these revenue projections, saying these could in future be lowered if power cuts intensify, global growth slows further or there was an escalation in the Russia-Ukraine war.
“The higher estimate is largely due to better-than-expected collections in the final quarter of 2021/22, upward revisions to near-term tax base growth projections and strong corporate income tax collections.
“Key factors affecting in-year revenue collection include higher profitability in the finance and manufacturing sectors. The mining sector’s contribution to corporate tax collections remains high in historical terms.”
Large import volumes and elevated prices have contributed to strong import value-added tax (VAT) and customs duty collections.
“Collections from employees in the finance sector benefited from a recovery in earnings and improved bonus payments, although employment growth remains weak. Net VAT collections have been revised down compared to 2022 Budget estimates, as higher VAT refunds more than offset improved domestic VAT receipts. VAT refund payments averaged R25.1 billion per month over the first half of 2022/23, driven by increased capital expenditure in the finance sector and manufactured exports. Lower disposable incomes for households will also weigh on domestic VAT collections.
“Fuel levy collections are projected to fall short of expectations due to the additional fuel levy relief provided during the first half of 2022/23,” reads the MTBPS.
The department expects tax-to-GDP to increase from 24.9% in 2021/22 to 25.3% in 2022/23.
“Further improvement depends on a durable economic recovery,” it said.
Compared with the 2022 Budget estimates, government proposes a net addition of R37 billion to main budget non-interest spending in 2022/23.
This consists of R54.1 billion in spending increases, partially offset by declared unspent funds; projected underspending and contingency reserve drawdowns.
The in-year allocations are expected to address balance sheet weaknesses in public entities that are central to economic recovery, said the department.
In this regard, SANRAL was allocated R23.7 billion to settle maturing debt and debt-related obligations. A total of R5.8 billion will be allocated to Transnet – half of which is shifted funds to repair infrastructure damaged by the recent floods, and half to repair and maintain freight rail locomotives.
Denel will be allocated R204.7 million to reduce contingent liabilities arising from its weak financial position and R3.4 billion – if set conditions are met – to complete its turnaround plan.
The Land Bank, which the Treasury said remained in financial distress and the process to finalise a solution was ongoing, had R5 billion in the contingency reserve in 2022/23 as part of the funding provided for in its previous budget. However, conditions for the release of these funds have not yet been met.
Treasury said in the current year, government would use 65% of this projected additional revenue to improve its primary balance, followed by 45% in 2023/24 and 37% in 2024/25.
“As a result of determined and disciplined budgeting, supported by favourable revenue dynamics, government expects to achieve a primary budget surplus in 2023/24. Net government debt is forecast to stabilise at 69% of GDP the following year.
“The consolidated budget deficit is projected to narrow from 4.1% of GDP in 2023/24 to 3.2% of GDP in 2025/26,” said the department.
Since the 2022 Budget, global growth has weakened and borrowing cost were rising rapidly, pushing a number of countries closer to sovereign debt crises.
Since 2007/08, South Africa’s public debt has risen sevenfold, from R577 billion to over R4 trillion in 2021/22.
“As a result, payments on the interest for this debt now exceed spending on essential services like health and security. Debt-service costs will continue to rise over the medium term and are projected to peak as a proportion of revenue in 2025/26.
“The country’s stock of debt remains high, and prudent public financial management remains essential to reduce the proportion of revenue dedicated to servicing debt over time,” he said.
Source: South African Government News Agency