Finance Minister Enoch Godongwana will have to balance the growing spending needs against weaker revenue streams when he presents his Medium-Term Budget Policy Statement on Wednesday. Government finances are under pressure as a result of the weak economy leading to lower revenue collection. Economists say taxpayers are already under pressure and 2024 — being an election year — it’s unlikely that government could signal increasing taxes, meaning it may have to borrow more to supplement the budget shortfall.
Many of the things that could go wrong in the economy have gone wrong, exposing government finances to many risks. The economy is growing at weaker-than-expected levels, while the cost of borrowing has increased for both consumers and the state amid a high inflation environment.
On average, 20 cents of every rand collected in government revenue each year is needed to service debt. Financial conditions at State Owned Enterprises have worsened and the public sector wage bill has grown more than expected, while there are growing social security needs.
The Finance Minister will have to present a plan of government for the next three years that will bring credibility to public finances. Economists say the Medium-term Budget Policy Statement will likely see some deterioration in terms of government revenue, expenditure and borrowing.
Senior Economist at Nedbank Isaac Matshego says ‘The Minister is going to be in a tight bind because he’ll have to strike a good balance between the very high expenditure needs and falling revenue collections. On the expenditure side, we know that the main concern will be the higher-than-budgeted public sector wage bill. In the February budget, the budgeted amount was an increase of 1.6%.
We saw a settlement of 7.5% which adds almost R38 billion to the wage bill alone and there are other expenditure increases. We know that the debt service bill is higher than expected due to higher interest rates and of course, the government having to borrow more on the income side. As you alluded to its revenue collections are under pressure company taxes which account for about 36% of tax collection are dropping at double-digit numbers compared to last year.
Source: eNCA
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