SOUTH Africa’s finance minister will propose tax changes next year as part of an effort to stabilise public finances that are under strain from a drop in mining revenue, a mid-term budget review showed.
The budget document presented to parliament projected wider deficits over the next three years and saw debt peaking at a higher level than in February when the main budget was tabled.
Revenue collections in the current 2023/24 fiscal year were forecast to be 56.8 billion rand ($3.04 billion) below estimates in February.
The National Treasury said it was committed to spending reductions, moderate tax measures and efficiency gains from merging or closing public entities, some of which have required repeated bailouts in recent years.
“Given the extent of fiscal consolidation required, the Minister of Finance will propose tax measures to raise additional revenue of 15 billion rand in 2024/25 in the 2024 budget,” it said.
The treasury did not spell out what tax measures were envisaged.
The South African rand and bonds gained after the new budget forecasts, which were better than the market had anticipated, according to Andrew Matheny, an economist at Goldman Sachs.
“The overall message is doubling down on spending-led fiscal consolidation,” Matheny added.
STATE FIRMS DENT GROWTH
South Africa’s 2023 economic growth is now forecast at 0.8%, from 0.9% seen in February and the 1.9% growth recorded last year.
A major constraint on growth comes from state companies. Power utility Eskom is implementing the worst rolling power cuts on record, and inefficiencies at freight rail, ports and pipelines company Transnet have curbed commodities exports.
The Treasury said it was amending Eskom’s debt-relief terms so loans to it would be interest-bearing, not interest-free, “to avoid a repeat of the mistakes in previous bailouts”.
Finance Minister Enoch Godongwana told Reuters on Wednesday that his team was working on a long-term solution to the problems at Transnet, which recently asked for a bailout, but he did not commit to providing a specific amount of financial support.
A consolidated budget deficit of 4.9% of gross domestic product (GDP) is now expected in 2023/24, wider than a 4.0% deficit seen in February. Next year the treasury predicts a deficit of 4.6% of GDP and the following year 4.2% of GDP, also wider than previously forecast.
South Africa’s gross debt is expected to rise to 6.52 trillion rand in 2026/27 from 5.24 trillion rand in 2023/24. As a percentage of GDP, gross debt is seen stabilising at 77.7% of GDP in 2025/26 compared with 73.6% in the same year seen in February.
The treasury said the government would raise $2.4 billion in 2023/24 through concessional funding to meet its foreign-currency commitments.
South Africa is already paying high premiums in global bond markets, and compared with estimates in the February budget, debt-service costs are seen rising by 14.1 billion rand to 354.5 billion rand in 2023/24.