JOHANNESBURG - Finance Minister Malusi Gigaba will have to quell some fears about the state of the economy when he tables his first mini-budget in Parliament next week.
The rate of growth in the economy is below February expectations and the collection of revenue to fund government expenditure is expected to fall well below budget. The shortfall is estimated between anything from R30billion to R65bn.
Nazrien Kader, the managing tax partner at Deloitte, said allegations of “state capture” and corruption in South Africa occupied the world stage for the better part of the year.
“This while the South African government remains pre-occupied with bailouts for state-owned entities - even while economists estimate that revenue collections will fall short of budget from an estimated shortfall of R30bn earlier in the fiscal year to between R50bn to R65bn more recently.” Kader said rating agents had the country on watch.
The medium-term budget policy statement (mini budget), delivered by the finance minister in October, is a government policy document that communicates to Parliament and the country the economic context in which the February budget will be presented. It must be presented in Parliament at least three months before the national Budget.
The statement must include a revised fiscal framework for the current financial year and the proposed fiscal framework for the next three years. It must also set out the spending priorities of government for the next three years as well as the proposed division of revenue between national, provincial and local government for the next three years.
Economist Mike Schussler said the most import issue for the minister to deal with on October 25 was the Budget shortfall. His estimate is around R40bn.
Difficult place
“The minister finds himself in a difficult place, and his collection agency is starting to shake the tax tree very hard. There is not a lot more to shake out of that tree.” Schussler said honest taxpayers were under tremendous pressure and they were not getting value for the tax money. There was an increase in the pushback by taxpayers to part with their money.
He referred to the possible bailout of state-owned entities such as SAA with assets under management by the Public Investment Corporation (PIC). The PIC is wholly owned by the government and mainly invests in pension, provident, social security and guardian funds.
This large pool of money could also finance the Budget deficit. Everybody knows the risk to do so was just too big, Schussler said. “If this is misused, they (the government) will really hurt the citizens of this country.”
Schussler said Gigaba would have to convince South African taxpayers and the international markets that he has a plan to cut government spending. “We are spending like a super-rich country on our public servants. Many taxpayers are not convinced that they are getting value for their money.”
He said the government might try to push up taxes without cutting its own expenses. All it would achieve is to cut the already low growth rate, which may lead to further job losses, company failures and even less taxes to collect.
Etienne Retief, the chairperson of national tax committee of the South African Institute of Professional Accountants, said projected tax income for the 2017/18 fiscal year was R1.41bn and the proposed expenditure R1.56bn.
“However, when people continue to see reports of corruption and wastage, without any accountability, they tend to become more reluctant to part with hard-earned money,” Retief said.