The February 2022 Budget painted a rosier picture than either the February 2021 Budget and the October 2020 Medium Term Budget Policy Statement (MTBPS) as revenue growth has been stronger than expected in part due to higher commodity prices recently, while the benchmarking exercise by Statistics South Africa (Stats SA) lifted the 2020 Gross Domestic Product (GDP) level by 11% which improved the fiscal deficit and gross government debt to GDP ratios.
This meant that the contraction in 2020 has been revised to 6.4% from February’s 7.2% and October’s 7.8%, while the higher revenue in 2020/21 means that tax revenue projections are higher by R197.3 billion than forecast in February.
In November 2021 some private sector economists such as those from Nedbank expected the over-run to be as much as R150 billion, but even this was too conservative.
The government used the higher-than-expected tax revenue to reduce the fiscal deficit and provide additional short-term support for health, social protection, job creation, and peace and security.
The Treasury aims to follow a fiscal conservation course over the Medium Term Expenditure Framework (MTEF) of the next three years, which should result in a primary budget surplus, that is where revenue is higher than non-interest spending, in fiscal year 2023/24, which is a year earlier than expected in November 2021.
Gross government debt is therefore expected to peak at 75.1% of GDP in 2024/25 from 78.1% of GDP in 2025/26 projected in November 2021 and decline thereafter, which should allow debt-service costs to fall below 22% of main budget revenue by 2026/27.
In terms of debt service to GDP, the Treasury expects that to peak at 5.3% in 2025/26 from only 2.4% in 2012/13.
The Treasury said that this fiscal consolidation will be supported by structural reforms such as the easing in the licencing of electricity generation and a series of bid windows for power from Independent Power Producers (IPP) that unlock private sector investment and thereby boosts job creation.
The Treasury has been conservative in terms of its GDP growth and revenue projections. Real GDP growth is expected to slow to 2.1% in 2022 from 4.8% in 2021 and then slow even further to 1.6% in 2023. In addition, the Treasury is very conservative in terms of its GDP deflator, which eases to only 1.5% in 2022 from 6.7% in 2021 and 5.3% in 2020. The net result of this is that after tax relief of R17 billion to consumers, consisting of R13.5 billion in tax bracket adjustments and R3.5 billion in no fuel levy increases, is that tax revenue is only expected to rise by 3.3% in the 2022/23 fiscal year.