MIDTERM BUDGET | Government cuts spending as revenue drops by R56.8bn

01 November 2023 - 14:06
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Finance minister Enoch Godongwana.
Finance minister Enoch Godongwana.
Image: Reuters/Shelley Christians Jordaan

The government has revised its tax revenue collection targets down by more than R56bn for the 2023/2024 financial year as the economy continues to underperform, forcing it to cut spending.

This is according to figures contained in the medium-termbudgetpolicystatement tabled in parliament by finance minister Enoch Godongwana on Wednesday.

Godongwana told MPs the tax revenue estimate he presented in his February budget has been revised down by R56.8bn as revenue streams dried up due to poor economic performance. This has been compounded by Eskom’s rolling blackouts, Transnet’s freight rail crisis and other logistical problems in the economy.

Key issues affecting the South African Revenue Service’s (SARS) ability to raise the projected revenue included plummeting corporate tax and higher value-added tax (VAT) refunds, among other things.

Godongwana said the “windfall tax” the country has been enjoying because of the recent years of commodity boom has “come to an end”.

“Mining provisional corporate tax collections fell by R24.6bn or 55% relative to the same period in 2022/2023.

“Lower commodity prices, weaker global growth, increased incidence of power cuts and logistical constraints have weighed heavily on the sector,” said Godongwana.

SARS has had to pay out more than expected VAT refunds, including those related to households and businesses investing in alternative energy sources as they move away from the unreliable Eskom grid.

Mining companies have so far claimed the largest portion of VAT refunds (R5.7bn), followed by the manufacturing sector (R5bn) and electricity (R3.5bn).

“VAT refund repayments are R21.5bn higher relative to the same period last year due to stronger than expected exports, increased investments in embedded generation and higher costs of doing business, including the use of more expensive road rather than rail transport.

“Stronger import VAT collections partially offset robust VAT refund payments.

“A sustained recovery in earnings and higher bonus payments have benefited personal income tax collections, with employees’ tax from the finance sector driving the strong year-to-date growth.”

As a result of dwindling tax revenue, Godongwana said the National Treasury will cut budget allocations to government departments by R85bn in the next two years.

In this financial year, conditional grants to municipalities, which they use to fund bulk infrastructure projects, have been immediately reduced by R3.4bn.

Provincial direct conditional grants have also been slashed by R6.2bn.

However, Godognwana managed to allocate R23bn to “labour-intensive departments” such as health, the security services and education, to help them implement the 2023 public sector wage agreement.

The agreement will see the salaries of civil servants rise by 7.5% in the 2023/2024 financial year.


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