Better than expected revenue collection means that South Africa has managed to pull itself back from the fiscal cliff in its latest budget, but the warning signs are still there.
This is according to the Fiscal Cliff Study Group (FCSG) which presented its response to the 2021 national budget in parliament this week.
The fiscal cliff is the point where civil service remuneration, social assistance payments and debt-service costs will absorb all government revenue.
The group said that these three costs took up 55% of all tax revenue in 2007/08. This increased to 75.5% of tax revenue in terms of the February 2020 budget.
The FCSG said that this neared 100% of estimated tax revenue in the October 2020 MTBPS, but that has clawed back 91% of tax revenue in terms of the February 2021 budget due to a lower than expected shortfall in revenue.
“The fiscal cliff barometer improved compared to the 2020 MTBPS, but continued vigilance is necessary as the shift is caused by significantly smaller than expected revenue under-recovery,” the FCSG said.
It added that the longer-term outlook for the fiscal cliff barometer remains worrying as it is likely to trend in the wrong (upwards) direction.
To reverse these trends, the study group said that Treasury needs to refrain from helping non-essential failed state-owned enterprises such as Alexkor, Denel, SA Express, and South African Airways.
It added that future austerity budgets are inevitable, as South Africa has not had any austerity budgets over the past decade.
The FCSG said that it also remains skeptical about some of the government’s medium-term forecasts.
“We urge members to take note of the (finance) minister’s repeated warnings about a looming sovereign debt crisis. Global lenders’ willingness to provide funds should not be confused with South Africa’s ability to repay it.
“The only real long term solution is sustainable economic growth – which will provide impetus for revenue to rise.”