Minister of Finance Malusi Gigaba

JOHANNESBURG - South Africa’s revenue shortfall is likely to be the focus of Finance Minister Malusi Gigaba’s maiden medium-term budget policy statement in less than a week, according to NKC African Economics economist, Elize Kruger.

The statement sets out the government’s three-year fiscal plans. In addition to the revenue shortfall, Gigaba will deliver the speech amid slow economic growth, allegations of failing governance and rampant corruption at key state-owned companies and political noise that is reaching deafening levels ahead of the ANC’s elective conference in December.

Since he took over at the end of March this year, Gigaba has used his interactions with local and international investors to reaffirm South Africa’s commitment not to stray from the fiscal consolidation path.

Kruger said, given its impact on the fiscal balance to GDP ratio, the revenue shortfall would feature strongly in Gigaba’s speech.

The revenue shortfall is currently estimated at R54billion. She said the fiscal balance to GDP ratio was expected to slip from current estimates of 3.1percent of GDP in the 2018 financial year to 4.1percent.

“This is considered to be notable fiscal slippage. How they are likely to finance the shortfall would be a further important focus. This could be through lower expenditure, higher taxes or higher debt,” said Kruger.

She also joined the chorus of economists who expected Gigaba to tweak the GDP growth forecast for the 2018 financial year. She said Gigaba was likely to lower the forecast from the current 1.3percent to 1.1percent. Most analysts expect Gigaba to lower the forecast to less than 1percent. Former National Treasury deputy director-general, Andrew Donaldson, said yesterday that most economic commentators had lowered their economic growth expectations.

“But it is important to look at the GDP inflation trend as well, because the budget is prepared in ‘nominal’ not real numbers. So it is also a problem for the Treasury’s projections that inflation appears to have moderated to a level below the February estimate of 6.4percent for the calendar year 2017,” said Donaldson.

He said, given the difficult fiscal position, economic growth had to be promoted by stimulating private investment, improved consumer confidence and a recovery in private sector credit extension - support for housing, urban infrastructure and a more business-friendly environment for small business.

“It is also important to address policy uncertainties in mining, telecommunications, land and agriculture and trade policy. Special economic zones such as Coega and the East London Industrial Development Zone need to be marketed as attractive investment destinations,” he said.

He said growth had picked up in the global economy and thus created opportunities for stronger South African growth over the medium term, “provided policy challenges are addressed”.

The performance of the tax system continues to be a considerable strength of the South African economy, despite the economic slowdown, he said. “This is critical, because there is little scope for raising the tax burden substantially at present,” said Donaldson. Banking Association of South Africa managing director, Cas Coovadia, said the government should use the policy statement to encourage national and global private sector investment.

“Without this it remains all but impossible to meaningfully address fiscal constraints and the expected shortfall in tax revenues that will continue to impact service delivery and the poorest of the poor - who remain marginalised because of the consistent inability to address the crisis in which we find ourselves,” said Coovadia.