Finance Minister Enoch Godongwana says that the National Treasury will look to raise R15 billion in additional taxes in 2024 as the country looks for ways to boost revenue.
South Africa’s main budget deficit has increased by R54.7 billion compared to 2023 Budget estimates, according to the medium-term budget policy statement presented on Wednesday (1 November).
This reflects lower revenue performance, higher wage bill costs and higher projected debt-service costs, the minister said.
“The main reasons for this are a sharp fall in corporate income tax, particularly from the mining sector, although personal income tax collection was better than forecast,” he said.
The result of the shortfall is a substantial worsening of the main budget deficit in the current fiscal year.
“We are now projecting a deficit of 4.9% of GDP compared to our previous estimate of 4.0%,” he said.
“Under these circumstances, measures to stabilise public finances and reform the economy to generate higher growth are essential.”
Godongwana noted that to tackle South Africa’s budget shortfalls, the government will be cutting spending by R21 billion in the current financial year. This will be on top of other internal measures – in line with Treasury directives – to curb spending.
No ‘extreme’ measures – like hiking VAT or raising taxes in the current financial year – were mentioned. Tax hikes and other revenue-focused measures are typically the domain of the main budget in February.
However, taxes still got a mention.
Need more revenue
Godongwana said that the best way to fund the government is through effective tax collection.
“SARS will continue its focus on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, voluntary disclosures, and encouraging honest taxpayers to comply voluntarily.
“Every additional Rand of revenue collected is one Rand less which we have to borrow,” he said.
Revenue collections in 2023/24 financial year is expected to fall by some R56 billion below the 2023 Budget predictions.
The MTBPS notes that slowing commodity exports, slower growth, downward revisions of the tax base growth, slowing corporate tax collections and lower net VAT collections have all impacted tax revenue.
The 2023 Budget had projected collections would reach some R1.78 trillion, but that has now been revised down to R1.73 trillion.
The causes of the downward revisions are plenty – ranging from reduced profitability in the mining sector, lower commodity prices, and VAT refund payments, among others.
Tax hikes incoming
The minister will propose tax measures to raise additional revenue of R15 billion in 2024/25 in the 2024 Budget.
“Tax revenues are expected to increase to R2.1 trillion, or 25.1% of GDP, by 2026/27. Revenue collection, however, is projected to fall short of 2023 Budget estimates by R121.4 billion between 2024/25 and 2025/26, with tax buoyancies generally lower over the medium term.
“Relative to the 2023 Budget, main budget revenue estimates for the next two years have been lowered by R152 billion, mainly driven by downward revisions to tax revenue projections,” Treasury said.
Non-tax revenue estimates for the next two years have also been reduced by R24.4 billion due to lower mineral and petroleum royalties and departmental receipts. Payments to the Southern African Customs Union (SACU) are also upwardly revised.
Treasury insisted that improved economic growth and further gains in tax administration are critical for improving tax revenues.
The department said that the “revenue measures” to raise an additional R15 billion through taxes will be announced in the 2024 Budget, “while limiting the negative economic effects”.