The government’s hopes of a primary fiscal surplus are likely to have been dashed, after savings and revenues came in slightly lower than expected in the February budget.
Though the outcome for fiscal 2022/23 is still much better than expected a year ago, the current fiscal year is looking a lot worse than the Treasury budgeted for in February.
The SA Revenue Service (Sars) reported last month that collections for the tax year that ended on March 31 had come in just R5bn shy of February’s upwardly revised budget estimates, mainly because of higher-than-expected refunds as companies invested heavily in backup power and renewable energy.
But monthly figures from the Treasury last week also showed that the government achieved R3.4bn less than expected in the year to end-March, which, along with higher-than-expected interest costs, meant that spending came in above budget.
Buoyant revenue collections prompted finance minister Enoch Godongwana to pencil in a primary budget surplus in February (excluding the Eskom bailout), which would have been SA’s first primary surplus since the global financial crisis. The primary surplus — where revenue exceeds non-interest expenditure — was hailed as marking a milestone in the government’s efforts to stabilise its debt, bringing the era of fiscal consolidation to a close.
Bloomberg reported on Monday that SA is likely to miss its primary budget surplus target for the 2023 fiscal year by R8.2bn. It recorded a primary budget deficit of R1.5bn, or 0.2% of GDP, in the fiscal year to March.
The Treasury had budgeted for a primary surplus of 0.1%, rising to 0.9% in the current 2023/24 year and 1.2% next year.
“The outcomes are less positive than projected but still reflect significant improvements in the fiscal position of government compared to recent years,” Treasury budget office head Edgar Sishi told Bloomberg.
“We consider that the outcomes reflect a combination of stronger than anticipated efficiency in processing VAT refund requests to taxpayers who qualify and the persistence of a difficult financial environment, with debt servicing remaining an important area of focus for fiscal policy,” Sishi said.
The Treasury figures showed a main budget deficit of R310bn against a budget target of R300bn, which equated to a 4.6% main budget deficit compared to February’s 4.5% estimate, Absa economist Peter Worthington said.
“This is still a lot better than the 6% of GDP that the Treasury originally budgeted for ... thanks to robust corporate and personal income tax collections, and a stringent public sector wage settlement,” Worthington said.
The focus has now turned to the current year, and with the Treasury’s growth forecasts way more optimistic than most economists now expect, it has little chance of meeting budget deficit and debt targets over the medium term.
Intensified load-shedding and logistics constraints have seen the Reserve Bank cut its 2023 growth forecast to just 0.1%, in line with the IMF’s recent update.
Some economists now expect zero growth or even a recession this year, though the market consensus is now at 0.6%, with some arguing that the economy has become more resilient to load-shedding, thanks to widespread investment in backup power generation.
But this is still well below the Treasury’s February forecast of 0.9%, rising to 1.5% and 1.8% over the next two years.
Worthington said the projected main budget deficit of 3.9% for 2023/24 is unrealistic, with revenue pressureslikely to mount and the public sector wage deal coming in above budget.
He forecast a 6.3% deficit, including the Eskom debt relief, or 5.2% if it were accounted below the line as the Treasury did.
“Although the institutional rehabilitation of Sars remains on track, we forecast that revenue collections are likely to suffer as intense load-shedding crushes growth, VAT-able household consumption spending, and corporate profitability,” he said.
The two-year wage deal signed with public servants will cost the government an additional R23bn, or 0.3% of GDP and there could be added spending on state-owned enterprise bailouts such as Transnet.
SA’s debt stock could stabilise only beyond 2025/26, which is the last year of implementing the Eskom debt deal, Worthington said.
The Reserve Bank said in its latest Monetary Policy Review that SA’s high public debt level impacted strongly on long-term investment costs for the economy as a whole.
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