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Analysts worried how the Budget will be financed amid slow GDP growth and narrow tax base

Enoch Godongwana at his maiden budget speech as the Minister of Finance. Picture: Phando Jikelo/African News Agency(ANA)

Enoch Godongwana at his maiden budget speech as the Minister of Finance. Picture: Phando Jikelo/African News Agency(ANA)

Published Feb 22, 2022


Cape Town - Finance Minister Enoch Godongwana will be delivering his Budget tomorrow at a time South Africa faces slow GDP growth, a narrow tax base, spending pressures and bailout requests from state-owned enterprises.

Analysts said there are worries South Africa faced significant fiscal challenges over the medium term.

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Senior University of Stellenbosch Business School Economics lecturer Nthabiseng Moleko said Godongwana should look at raising the country’s economic output or GDP as well as at revenue collection.

“The government’s focus should be on how to capture the illicit financial flows, which is something that is not usually focused on.”

She said this should be done by strengthening the capacity of Sars in effect to tax profit shifting or non-payment of taxes.

Political scientist Ntsikelelo Breakfast said: “In the light of inequality, poverty, unemployment and other social ills, I think trying to enforce fiscal discipline is a mission impossible, so I think we will see an increase of government expenditure, the increase of VAT and the gains from these being redirected to social security and infrastructure projects.”

While investors want clarity regarding the future of the Social Relief of Distress (SRD) grant that has now been extended once again for another year to end in March 2023, and the public wage bill, Godongwana has highlighted that the local economy is simply too weak for higher taxes.

Anchor Capital investment analyst Casey Delport said the chief long-term concern from investors remained centred on inadequate economic growth which would contribute to a debt spiral.

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“Scepticism remains with regards to whether there is adequate traction with policy reform to sufficiently lift trend growth to ensure debt stabilisation amid elevated social spending needs.”

As for the financial distress of municipalities across the country, political analyst Ralph Mathekga said the crisis was serious as most of them were on the verge of bankruptcy, which made it impossible for them to provide basic services.

“From what I heard in the Sona we’re likely to see a lot of money allocated to the district development model which is the system the government has chosen to respond to financially distressed municipalities.”

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University of Stellenbosch Business School (USB) economist Professor André Roux said: “Global economic growth rebounded significantly in 2021 after the decimation brought about by the Covid-19 induced recession in 2020.

“One of the outcomes of this was a sharp recovery in commodity prices, which has resulted in much higher than expected mining tax revenue in South Africa. This has provided some welcome – albeit limited – breathing space on the fiscal front.”

Economic analyst Daniel Silke said: The key issue with regard to whether there will be changes in the corporate and value-added tax rates or whether some personal income tax relief is possible is to see how much additional revenue over what was budgeted for come in as a result of the commodity boom in the country’s exports.

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Absa economist Peter Worthington said: “We believe that the Budget will pencil in an envelope for public sector compensation that implies no material wage uplift for the 2022/23 financial year, even though the government will likely end up providing an inflation-linked adjustment.

He said they were particularly curious to see if the 2022 Budget would contain any further funding for SOEs.

He said he believed that South African Special Risk Insurance Association (Sasria) itself, a state-owned company, would need more money.

“There is an outstanding transfer of about R3.5 billion to South African Airways, and the Post Office may also require further funding.

“Furthermore, Transport Minister Mbalula said last year that the budget would reveal a solution for roads agency Sanral’s debts and Public Enterprises Minister Gordhan promised the same for Eskom, but it is not clear that the government has reached a solution for these thorny problems.”

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