Home Opinion and Features Budget Preview 2024: Fiscal slippage could accelerate further

Budget Preview 2024: Fiscal slippage could accelerate further

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Finance Minister Enoch Godongwana will table the National Budget later this month amid deteriorating tax revenues, rising expenditure demands, weak economic growth and policy uncertainty.

Finance Minister Enoch Godongwana will table the National Budget later this month. File picture: Phando Jikelo

ECONOMISTS have warned that fiscal slippage in South Africa could accelerate further as the national budget deficit is forecast to worsen more than previously expected at the end of the 2023/24 financial year while government borrowing escalates.

Finance Minister Enoch Godongwana will table the National Budget later this month amid deteriorating tax revenues, rising expenditure demands, weak economic growth and policy uncertainty.

The 2023 February Budget projected gross debt was at 72.2% of gross domestic product (GDP) for this 2023/24 fiscal year, which was then pushed up to an estimate of 74.7% of GDP in the November medium-term budget.

The 2023/24 budget deficit, which occurs when expenditures exceed revenue, was revised weaker, at -4.9% of GDP in November compared to -4.0% of GDP in February, further evidence of fiscal slippage, and the deteriorated budget deficit projections of later years won’t have improved substantially.

However, Nedbank economist Busisiwe Nkonki said recently that the monthly budget data for the first nine months of the 2023/24 financial year suggested that the budget deficit will exceed 5%.

Nkonki said the National Treasury data showed that tax collections were subdued while expenditure growth remained high between April and December, the first nine months of fiscal year 2023/24.

She said tax revenue growth was only 0.2% compared with the first nine months of 2022/23, contained by a slump in company taxes as the tough domestic environment and less favourable global environment hurt company profitability.

“In the mining sector, low commodity prices have added to the impact of high operational costs — due to power outages and rail and port inefficiencies — on profitability,” Nkonki said.

“Personal income tax collections rose by 8.3% year-on-year, while value-added tax collections were up by 6.1%. Aggregate expenditure growth remained high at 5.3%, due to the high public sector wage settlements and higher interest payments.

“The latest figures point to the budget deficit for 2023/24 exceeding 5% of GDP against 4.9% estimated in the Medium-Term Budget Policy Statement in November.”

Last week, the International Monetary Fund (IMF) chief economist Pierre-Olivier Gourinchas said the country’s frail fiscal position was exacerbated by the high public debt levels in South Africa.

The IMF said it was imperative for South Africa to maintain fiscal consolidation, controlled public spending, and that increased tax-revenue collection took precedence.

Investec chief economist Annabel Bishop on Friday also said that the marked fiscal slippage highlighted in November last year would become entrenched, and thus fiscal consolidation would remain delayed.

Bishop said that this year’s State of the Nation Address, to be delivered by President Cyril Ramaphosa in Parliament this week, was likely to show more populism creeping in, particularly on the health-care side.

She said the ANC-led government was likely to use the lure of incoming National Health Insurance (NHI) health-care to garner more votes, although over the long term it was likely to result in less, and poorer quality, public health care as taxpayers emigrate from South Africa in greatly increased numbers.

“The impending National Health Insurance Act seeks to eradicate private sector health care, with the majority provided by the State, which has ranked amongst the worst health-care providers for many years in the World Bank’s global competitiveness survey,” Bishop said.

“This would all negatively affect state revenue, resulting in a massive worsening in borrowing, while state expenditure would rocket, and the prospect of fiscal consolidation disappear.

“However, any lowering of nominal GDP estimates would increase the gross loan debt projections, worsening fiscal slippage.”

Meanwhile, economic growth in South Africa is still expected to be better than last year’s at 1% in 2024 as the energy crisis and logistical bottlenecks ease marginally.

EY Africa head economist Angelika Goliger said South Africa’s economic growth outlook for 2024 was relatively stronger, with key forecast agencies projecting higher headline growth.

Goliger said GDP growth would likely be supported by a gradual reduction of congestion at the ports, but electricity supply was not expected to fully meet demand this year amid continued capacity constraints.

As such, Goliger said load shedding was likely to persist in 2024, and subsequent years should see additional capacity from the private sector.

“Domestically, sentiment is likely to remain weak due to uncertainty over the outcome of the national election, and the subsequent nature of a likely coalition government, weighing on business confidence.

“Expectation of a mild slowdown in global growth could provide some cushion to South Africa’s economy, however an expected slowdown in China, due to the property crisis, is likely to limit this positive impact.”

– BUSINESS REPORT

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