JOHANNESBURG - BNP PARIBAS yesterday forecast that South Africa’s main budget deficit could narrow by 2 percentage points due to a more favourable base for revenues.
In a research note, BNP senior economist Jeff Schultz said that revenue overshoots and expenditure cuts would help shore up the fiscus.
“However, we think a more favourable base for revenues, coupled with a consistent commitment to expenditure restraint, will improve the 2020/2021 financial year main budget deficit by nearly 2 percentage points of GDP to 12.5 percent,” Schultz said.
“That said, the National Treasury’s ambitious non-interest expenditure cuts targeted could dent some of the credibility of the improved consolidation trajectory, given our view that a new public sector wage agreement is unlikely to be finalised until the second half of 2021.”
South Africa’s main budget deficit is expected to be R707.8 billion, or 14.6 percent of gross domestic product (GDP) in the 2020.21 financial year, due to gross loan debt of R3.97 trillion, or 81.8 percent of GDP.
Recent predictions have shown that South Africa may experience a revenue overrun of more than R100bn in 2020/21.
This was likely due to increased efficiency at the SA Revenue Service (Sars) as it repairs its large business unit.
Sars has shown that both personal income tax and corporate tax collections rose in December 2020 compared to the prior year.
Revenue rose to R176.4bn in spite of a depressed economic climate.
Last month the Treasury had R378bn in cash, R43bn more than expected due to an overissuance of government bonds in recent months.
Schultz said BNP Paribas expected significantly improved revenue performance in financial year 20/21 to have positive knock-on effects to the Treasury’s nominal revenue outlook compared to the 2020 medium-term estimates.
“Our estimates that the Treasury could revise up its nominal revenue expectations by R107bn in 2020/21 will also help edge up its 2021/22 and 2022/23 revenue projections by around R55bn in each respective year,” Schultz said.
Economists have also ruled out a possibility of a new tax to raise additional funds for the fiscus.
Wesley Grimm, associate at Webber Wentzel, said non-tax measures would be more effective in raising funds for the fiscus.
Grimm said although it was possible higher income earners were more likely to continue to shoulder the burden of increased personal income tax rates. “Taxpayers earning more than R750 000 per annum should brace themselves for increases between 2 percent and 4 percent in their marginal tax rates,” Grimm said.
Investec chief economist Annabel Bishop said reducing planned spending and planned borrowings in the face of the negative outlooks from the rating agencies should remain the priority.
“We continue to expect that the government is likely to be lenient on the tax front with little to no income tax increase and even allowing for fiscal drag, and no corporate tax increases as it prioritises economic recovery,” Bishop said.
BUSINESS REPORT