SA tax revenue ‘remains resilient’


24 October 2013

South Africa’s revenue collection has shown resilience in a tougher economic climate, with expected gross tax revenue revised down by only R3-billion to R895-billion, Finance Minister Pravin Gordhan told Parliament on Wednesday.

Presenting his medium term budget policy statement in Cape Town, Gordhan said that R3.8-billion more in customs duties was expected to be collected for 2012/13 as a result of taxes on imported goods, while personal income tax is expected to net R1.5-billion more than anticipated.

However, collections from the dividend withholding tax is expected to undershoot expectations by R5.9-billion, while those from excise duties will come in at R2-billion less than expected, and fuel levy taxes at R1.5-billion less than expected.

Gordhan said that although South Africa had several strengths – a sound macro-economic policy, deep and liquid financial markets, and robust corporate and public balance sheets – the economic and fiscal outlook had weakened in recent months.

Combined with weaker economic growth, commodity export prices have declined during the first nine months of this year, bond yields have begun to rise, placing added pressure on interest costs, and reliance on foreign investors to finance the budget deficit has increased.

The country’s gross domestic product (GDP) is expected to grow by just 2.1% this year, rising to 3.5% in 2016.

While a spending ceiling has been set for 2016/17, which will hold real non-interest expenditure growth to an annual average of 2.2% over the three-year spending period, net national debt is projected to stabilise at 44%, Gordhan said.

The 2013 budget was the government’s first budget since 1999 that did not add new resources to previously announced spending plans.

Total expenditure for 2013/14 has been revised down to R1.05-trillion, R5.7-billion less than the estimate tabled in the 2013 budget.

An indication of the slowdown in spending by the government is that main budget non-interest spending grew at eight percent a year in real terms between 2003/4 and 2011/12, but is budgeted to grow at just 2.1% over the next three years.

Spending on social grants and social protection is the only item in the main budget that is expected to grow faster between 2013/14 and 2016/17 (at 13.8%) than between 2010/11 and 2013/14.

Gordhan said, however, that the growth in the number of grant beneficiaries over the next three years would be offset by savings realised from the re-registration of beneficiaries in the move to a biometric smart card for social grants, which began last year.

The South African Social Security Agency has already declared a saving of R2-billion in social grant payments thanks to the re-registration process.

While the areas of economic services, public services, higher education and environmental affairs and science and technology are all projected to grow at less than half the rate between 2013/14 and 2016/17 than they did between 2010/11 and 2013/14, those for economic infrastructure, policing, basic education and health will see only marginally less of an increase over the latter period.

The Department of Health has reduced the allocation to the national health grant after the grant had R200-million in unspent funds in the last financial year. This has freed up an additional allocations which will allow for the purchase of new equipment for forensic chemistry laboratories, Gordhan said.

Funds have also been reprioritised to the Department of Social Development to help set up shelters for victims of gender-based violence and to establish more substance-abuse centres, with an additional R20-million set aside for the latter.

The budget deficit is expected to come in at 4.2% for 2013/14, declining slightly to 4.1% in 2014/15, before falling to three percent in 2016/17.

Interest payments are the fastest growing expenditure item over the next three years, growing to R140-billion in 2016/17 – higher than current spending on health care.

Compensation of public servants now accounts for 39.4% of the budget of non-interest spending and will continue to outpace inflation, but grow at a slower rate than over the past three years.