Budget deficit fears as tax revenue takes R26bn hit
CAPE TOWN - Tax revenue for the eight months to the end of November highlights the ravages of the recession on company profits and the proceeds from value- added tax, yielding R26bn less than the same period last year.
The Treasury would not say yesterday whether the collection trend so far confirmed Finance Minister Pravin Gordhan's estimate in October that tax revenue for the year would be about R70bn lower than the February budget forecast or whether it could be even higher when he tables the 2010-11 budget next month.
It was too close to the budget announcement to make a comment, Gordhan's spokeswoman, Thoraya Pandy, said.
Gordhan forecast a consolidated budget deficit of 7,6% of gross domestic product, or a shortfall of R184bn, when he tabled the medium-term budget policy statement in October, but some economists are now forecasting that it could be as high as 9%.
Investment Solutions chief economist Chris Hart said there was a "strong risk" of the budget deficit exceeding the official forecast because the economy and consumer demand had been far weaker than anticipated.
Last week, the South African Reserve Bank reported the sharpest year-on-year contraction in credit demand in 43 years.
Credit demand from households and companies fell 1,6% in November compared to November in 2008.
The extent to which the government's finances are stretched was highlighted by Treasury figures which showed that the government's expenditure over the eight months to end-November amounted to R489,5bn, compared with the previous year's R403bn. In contrast, revenue collected amounted only to R337,3bn compared with the previous year's R363bn.
Hart said the unsustainability of government policy and spending patterns had been exposed by the economic downturn. It was critical that Gordhan insist on further belt-tightening in his next budget. "Government's expenditure is too big for the now weakened tax base. Government needs to right-size."
Hart warned against the imposition of higher taxes to fund expenditure, as had happened in the US and UK, saying this would strangle wealth generation in the economy.
Despite the yawning gap between the respective figures, however, revenue collected by end-November was 59,1% of total budgeted revenue of R657,5bn, and more or less in line with the comparative 59,6%.
The biggest losses have been in the yields from corporate income tax, which fell over the eight months from R82,6bn in 2008 to R69,4bn last year, and from value added tax, which plunged from R97bn to R88,6bn.
However, collections seem to be in line with Treasury projections because by the end of November corporate income tax collected as a percentage of the revised estimate was very much on a par with the previous year.
With regards to VAT collections, slightly more (64%) had been brought in by end-November compared with the previous year's figure of 62,8%.
Another sign of the times and of the high level of unemployment was the flat performance of personal income tax, which generated R126bn in the period under review, more or less in line with the previous R124,5bn, despite inflation-adjusted salary increases.
Customs duty revenue was down from R15bn to R11,6bn year on year for the eight months.
The Treasury figures showed that by the end of November the state had borrowed R126,4bn to finance its budget deficit compared with only R26bn in 2008.
Of this, R46,2bn was made up of domestic short-term loans, R73,7bn in domestic long-term loans, and R8,4bn in foreign loans, while available cash and other balances amounted to R18,7bn to give a net financing figure of R147bn.
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