• South Africa is facing a record budget deficit after the pandemic wreaked havoc on its income and expenses.
  • But tax income was surprisingly strong in December.
  • If the trend continues, Treasury could have a budget overrun for the year, says Old Mutual.
  • For more articles, go to www.BusinessInsider.co.za.

While South African government finances are looking far from healthy after being ravaged by the pandemic and years of overspending – the situation may be slightly less grim than Treasury thought.

The latest numbers from National Treasury show that in December – despite closed beaches and a lethal second wave of Covid-19 – government’s tax revenue of almost R176.4 billion was significantly higher than the R160.4 billion earned in the same month in 2019.

Tax paid by companies in December was 15% higher than in the previous year, with individual income tax up 1%, analysis by Old Mutual Investment Group shows.

Source: Old Mutual Investment Group

For the period from April to December, the picture is bleaker: revenue was only R869 billion, compared to R967 billion in the same period of the previous year.

Still, this is much better than Treasury expected in its October medium-term budget, says Old Mutual.  

Treasury’s forecast was for revenue to fall by 16% from April to December - instead it declined by “only” 10%. Government expenditure rose by a less-than-expected 7%.

Source: Old Mutual Investment Group

If the current tax trend continues, South Africa is heading for a budget overrun of more than R45 billion by the end of the fiscal year, says Old Mutual Investment Group chief economist Johann Els.

“This is mainly because of higher-than-anticipated tax revenue last year, with the [income] surplus possibly amounting to as much as R106 billion.”

Source: Old Mutual Investment Group

It is therefore baffling that Treasury officials are considering tax hikes to pay for the R20 billion vaccine programme, says Els. The budget overrun could cover the cost of vaccinating the entire country.

While he concedes that Treasury may want to use the money to cut the budget deficit – which under a best case scenario will blow out to a record 12.5% this fiscal year – the vaccine programme is essential to South Africa’s economic recovery.

One route that has not yet been explored fully is to take up offers of assistance from the private sector to help with resources and procurement of vaccines to speed up the rollout, says Els.

“President (Cyril Ramaphosa) has spoken for years about public-private partnerships, but now it seems they want to go it alone,” Els says. “The private sector is ready and willing to help wherever it can, and can be a powerful partner with government to end this pandemic as quickly as possible.”

Compiled by Helena Wasserman

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