We are in fiscal crisis

Sandy McGregor, Portfolio Manager at Allan Gray

The numbers were much as expected. The consolidated fiscal deficit is projected to be R762bn. Expenditures have been controlled by reallocation to meet new priorities. The growth in the deficit is largely due to a R300bn collapse in tax collections.

The important statements in the documentation issued in conjunction with the Budget Speech were regarding the danger of entering a debt spiral. We are in a fiscal crisis. Tito said we wished to avoid the fate of Zimbabwe and Argentina. To this end the government intends to commence a debt stabilisation process which will guide the formulation of future budgets. The only way to reign in debt is to cut spending. There must be significant spending adjustment and a review future public spending is promised…

The longer-term economic growth strategy will focus on expanding investment on infrastructure and investment by the private sector.

There was never any intention to revisit taxation measures in this Budget. Its purpose was to reallocate spending to fight the pandemic. The issue of tax changes will have to be revisited in the 2021 budget. However, the reality that there is little scope to increase revenues remains. The only way to increase revenues is to grow the economy.