Kicking the can, not the bucket

Compared to the euphoria of the Springbok’s victory tour, the Medium-Term Budget Policy Statement (MTBPS) was always going to be a comedown.

But even by less ecstatic standards, it was still bleak. The good news, if there is any, is that the finance minister and National Treasury are acutely aware of the seriousness of the problem. This was a face-the-music Budget with no attempt to sugar-coat things. A few months before an election, this is admirable and important. Minister Godongwana certainly talked the talk, but the question is whether he can walk the walk, especially given the many decisions that are outside his control.

The reason this was not a feel-good Budget is because tax revenues for the current fiscal year are expected to be R56.8 billion lower than projected in February. This is a massive undershoot, largely due to lower corporate tax revenues and higher VAT refunds. Lower commodity prices and increased spending on combatting loadshedding have resulted in pressure on corporate profits, especially in the mining sector, and ultimately, tax payments. Meanwhile, spending has run a bit ahead of plan, mainly due to the larger than budgeted public sector wage increase.

Debt and deficits
As a result, the budget deficit, the gap between spending and revenues that must be funded by borrowing, will be 4.9% of GDP this year, instead of the 4% that was projected in February. Next year’s deficit is projected to narrow somewhat, as is the case in the year thereafter. However, the ratio of government debt to GDP will now only stabilise later and at a higher level, as illustrated in chart 1, if everything goes according to plan.

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