The medium-term budget policy statement due to be presented later in October is likely to show a much-improved main budget deficit for the 2022/2023 fiscal year compared with the national budget presented in February.
The Treasury’s monthly budget data shows that government tax revenue exceeded the February budget outlook by R162bn, or more than 2% of GDP — or when taking into account the usual seasonality in monthly tax revenue, the overrun could be closer to R110bn, about 1.5% of GDP.
The data showed the main budget deficit narrowed to R42.7bn in August from R129.5bn in July as personal income tax, as well as lower levels of refunds, boosted revenue. The August reading came in better than expected; the Thomson Reuters consensus pencilled in a deficit of R66.8bn.
The main budget deficit narrowed as revenue rose 12.6% year on year in August, faster than 11.6% expenditure growth.
Revenue was mainly driven by personal income tax receipts, which rebounded 11.3% in August after a contraction of 4.1% in July.
The cumulative numbers so far this fiscal year — from April to August — show that tax revenue increased 10.5% year on year, well ahead of the February budget projection of 3.3% for the entire 2022/2023 fiscal year.
Absa chief economist Peter Worthington said that together with the provisional financing data due on Tuesday, the Treasury might signal a surplus or smaller deficit in September mainly as a result of moderating expenditure, particularly interest payments on bonds.
The main budget deficit is now at R160.7bn, down 17.7% year to date.
Despite some economists again expecting revenue to outperform by a wide margin as a result of the commodities boom, Allan Gray portfolio manager Thalia Petousis said the commodity boom cannot be counted on to see the country through tough times.
“Even though the commodity story has meant that the country’s trade balance soared for most of the last two years, as national exports exceeded imports ... allowing SA’s current account to reach a record high surplus of 5.2% of GDP in 2021, SA has not been able to take full advantage of the commodity boom” Petousis said. “So far in 2022, an escalation in the price of imported goods is seeing the positive trade balance erode.”
She said the blackouts, strikes and weak port and rail infrastructure have weighed on mining production, while also raising the barriers to get contracted volumes offshore.
Pressure
“Additionally, the SA fiscus is under enormous pressure due to a struggling municipal model, the growing social requirements for poverty and relief grants, and a structural shortage of energy. The debt of embattled state-owned entities like Eskom will likely need to be taken onto the government’s balance sheet imminently,” she said.
Petousis said the rising cost of oil and disappointing mining production volumes have also wiped out the current account surplus, taking it from a record 5.2% of GDP to a dismal -1.3% of GDP at the end of the second quarter of 2022.
“Ultimately, debt stabilisation rests on sticking to the spending plan and reducing wasteful expenditure. Fiscal sustainability rests on implementing growth-enhancing reforms and allocating capital to its most productive economic use even though commodity prices provided some fiscal relief,” she said.
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