South Africa faces another big budget problem this year

Government finances are improving, but will take years to recover – even if the right choices are made, says economists at Momentum.

At this early stage of the new fiscal year, it seems as if the government is heading for another huge revenue overrun – despite excise duty losses emanating from level 4 restrictions – compared to the National Treasury’s estimate in the 2021-22 budget, the group said in a research note this week.

“The South African Revenue Service (SARS) improved capacity on collections, while higher company income tax receipts, stemming from profits boosted by high commodity prices, and recovering individual income should also support government revenue.

“However, it seems as if civil servants may receive an increase between 4% and 5% in salaries this year, despite the ‘three-year salary freeze’ announced by the minister of finance in his budget speech.”

This increase should not cost the government the full R23 billion that such increase would normally entail, Momentum said, citing an analysis by Deutsche Bank.

This is because the government already made provision for an increase of 1.5% in the February budget and that the additional cost in the form of a ‘once-off’ monthly cash bonus will, according to Deutsche Bank, cost around R16.7 billion.

This will, however, depend on unions accepting the government’s wage offer, Momentum said.

“Lower fiscal deficits than estimated by National Treasury in the next three years are therefore still on track.

“Deutsche Bank did an analysis showing that higher nominal GDP growth, coupled with lower debt service costs, may lead to a primary budget surplus by 2023-24. National treasury projected a primary deficit for an additional two years, and a debt to GDP ratio peaking below 80% in 2025-26 compared to Treasury’s projected 88.9% in the February 2021 budget.”

Read: South Africa to declare a state of emergency should the need arise: defence minister

Must Read

Partner Content

Show comments

Trending Now

Follow Us

South Africa faces another big budget problem this year