SOUTH Africa’s Budget could reach a primary surplus by 2024/25, as per National Treasury’s goal, if the government manages an “unflinching” commitment to fiscal consolidation.
This was the view of Old Mutual Wealth Group economists yesterday, as they unpacked their expectations for the Budget to be presented by the finance minister next week.
Currently, the consolidated Budget deficit is expected to be 7.8 percent of gross domestic product (GDP) in 2021/22, gradually lowering to 4.9 percent in 2024/25.
This is a significant improvement from the deficit of 15.7 percent, or R760 billion, suffered during the 2020/21 fiscal year at the height of the Covid-19 lockdown restrictions.
The Treasury aims to use part of the higher tax revenues associated with the recent surge in commodity prices to narrow the deficit, while increasing non-interest expenditure to support economic growth, job creation and social protection.
Old Mutual Investment Group chief economist Johann Els yesterday forecast a Budget deficit of 6.1 percent, or R375bn, for the 2021/22 fiscal year on the expected revenue overrun.
Els forecast a 19.9 percent increase in revenue collection to R1 695 trillion, compared to Treasury’s estimate of R1 648 trillion this financial year.
He said the upcoming Budget would reveal a very much stronger V-shaped recovery in the economy than forecast in the Medium-Term Budget Policy
Statement (MTBPS), buoyed by strong global support through very supportive terms of trade.
“The current fiscal year outcome from 2021/2022 is likely to be even better than forecast in the MTBPS, with a continued strong focus on fiscal consolidation and reform,” Els said.
“To make this Budget really meaningful, I’d like to see the Treasury sticking to or enhancing the primary surplus over the medium term, as well as a Covid grant extension on a deficit-neutral basis, as was promised in the MTBPS.”
Els said the government should exercise strong expenditure control, especially in state-owned enterprises (SOEs), and contain the wage bill growth for a surplus to be in sight.
He said further expansion to the social security system, such as the universal Basic Income Grant should be considered only if it was deficit neutral.
“We would also need to see a commitment to sticking to targets for public sector wage bill savings, news on zero-based budgeting, no further SOE support and no new tax increase,” he said.
“Ultimately, further economic reform measures would be a crucial aspect of the reduction in fiscal risk down the line.”
President Cyril Ramaphosa’s State of the Nation Address (Sona) last week contained some positive signs of a change in policy direction.
Ramaphosa said the government was accelerating the implementation of far-reaching structural reforms to modernise and transform these industries, unlock investment, reduce costs and increase competitiveness and growth.
In a note yesterday, Oxford Economics Africa economist Jee-A van der Linde said Finance Minister Enoch Godongwana has to show some “tough love” for the SOEs.
Van der Linde said the government must provide a road map towards letting go of the SOEs that are underperforming and no longer considered strategically relevant.
“Furthermore, in the wake of the devastating Zondo report, continuation of zero-based budgeting is of key importance, and an update on progress in this regard will be welcome.
“Mr Godongwana has the near-impossible task of tabling a growth-friendly Budget while sticking to the Treasury’s fiscal consolidation targets.”
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