A weak economy and poor job and pay prospects have pushed the projected revenue shortfall to a cumulative R251bn over the next three years, the Treasury revealed in the medium-term budget policy statement on Wednesday.
The shortfalls, along with R161bn in Eskom bailouts, will see budget deficits climb 2.2 percentage points higher, on average, than finance minister Tito Mboweni projected in February, with the government's debt set to jump to more than 70% of the size of the economy over the three years if nothing is done to arrest the slide.
Mboweni said government revenue for the current year is now expected to come in almost R53bn below target.
Budget estimates show personal income tax made up almost half of this, falling R25bn behind target as retrenchments, lower wage settlements and smaller bonuses caused taxes from individual taxpayers to decline for the first time in many years.
Reduced company profits are also expected to have an impact, with company income tax collections falling more than R10bn short. Weak household spending could see value added tax (VAT) collections fall R12bn behind target.
South African Revenue Service (Sars) commissioner Edward Kieswetter, who was appointed in May, also pointed to the "sub-optimal performance" of the tax authority, whose capacity and effectiveness were eroded by state capture. He cautioned it will take time to rebuild Sars and restore public trust.
He said the proliferation of criminal syndicates working to evade tax, particularly in VAT, was undermining revenue collection. "By February we will have another dipstick of how much of the rebuild has taken place and we will have a morally more defensible basis for adjusting tax policy," he said.
Though the revenue shortfall is lower than the R59bn-R60bn some economists expected, it depends on some recovery between now and the end of the fiscal year in March. As things stand, this year's lower collections, combined with much lower growth in the next two years, will see the shortfall rise to almost R115bn in 2021/2022, unless new tax hikes are announced in February or growth improves.
The medium-term budget document shows revenue grew by just 3.7% in the first half of the current fiscal year - compared to the 10.4% target Mboweni set in February's budget. However, this in part reflected an unusually high level of VAT refunds, as the new Sars leadership began to pay back billions of rands in VAT refunds that had been held back during the tenure of former commissioner Tom Moyane.
The Treasury said it expects revenue growth to accelerate to 6.4% for the year.
Mboweni has already pencilled in R10bn in tax changes for next year, details of which will be announced in February. Though he is clearly reluctant to contemplate further hikes, pointing out in his speech on Wednesday that the tax burden, at 26%, is now back up to the levels of 20 years ago, he has not ruled them out.
However, after years of hikes in personal income tax, fuel and sin taxes and VAT, economists say the economy is almost "taxed out", with hikes unlikely to yield much more revenue while they create incentives to avoid tax, legally and illegally.
The Treasury said it will release a discussion document in February that reviews and proposes options to improve tax administration oversight.
Separately, Mboweni announced a new round of liberalisation of SA's exchange control regulations, with plans to introduce a new risk-based system that would mean some cross-border deals will no longer need exchange control approval. Details will be announced in February.
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