The National Treasury announced on Wednesday that the gross tax revenue for 2020/21 is expected to be R213.2 billion lower than projections in the 2020 Budget.
“However, due to a recovery in consumption and wages in recent months, and mining sector tax receipts, 2020/21 revenue collections are expected to be R99.6 billion higher than estimated in the 2020 MTBPS.
“As a result, government will not introduce measures to increase tax revenue in this Budget, and previously announced increases amounting to R40 billion over the next four years will be withdrawn.”
The main tax proposals include an above-inflation increase in personal income tax brackets and rebates, and an 8 percent increase in alcohol and tobacco excise duties.
The National Treasury said while a temporary increase in spending was necessary to combat the spread and impact of COVID-19, the medium-term policy stance is focused on repairing the public finances.
“The 2020 MTBPS noted that, over the past decade, increased government spending has failed to promote growth.
“Since 2008, real spending growth has averaged 4.1 percent annually, well above annual real GDP growth of 1.5 percent.”
Despite high levels of expenditure, supported by increased debt accumulation, growth has not recovered to pre-2008 levels.
“The fiscal position, which was already weak before the current crisis, has deteriorated sharply, requiring urgent steps to avoid a debt spiral.
“For several years, increasing debt-service costs have exceeded nominal GDP growth – a trend expected to continue over the medium term.”
The National Treasury said if this course is not reversed, the economy will not be able to generate sufficient revenue for the state to service debt.
“Were that to occur, government would lose the ability to control debt and debt-service costs, as investors conclude that lending rates do not adequately compensate them for risk, leading to greater currency volatility and a protracted capital flow reversal.”
According to the National Treasury, gross loan debt is expected to increase from R3.95 trillion, or 80.3 percent of GDP, in 2020/21 to R5.23 trillion, or 87.3 percent of GDP, by 2023/24.
“Debt-service costs will rise from R232.9 billion in 2020/21 to R338.6 billion in 2023/24.
“These costs, which were already the fastest-rising item of spending, now consume 19.2 percent of tax revenue. Funds that could be spent on economic and social priorities are being redirected to pay local and overseas bondholders.
“Over the next three years, annual debt-service payments exceed government spending on most functions, including health, economic services, and peace and security.”