According to Moneyweb, although personal and corporate tax collections have surpassed expectations, a study suggests that Treasury should be open about the state of the economy in the nation.
Three of the six items on PwC’s list of critical issues that it hopes will be addressed in the Medium-Term Budget Policy Statement are the transfer of Eskom’s debt to the country’s balance sheet, greylisting, and the backlog in processing critical skills visas (MTBPS).
Enoch Godongwana, the finance minister, is scheduled to present it on October 26, 2022.
The statement should also cover a planned framework for an extensive social security system, management of the government wage bill, and progress with the Infrastructure Fund pipeline, according to PwC’s 10th South Africa Economic Outlook report.
According to PwC, while the transfer of Eskom’s R400 billion debt to the sovereign balance sheet would worsen fiscal metrics even more, it might be the only option left to improve the utility’s finances and the prospects for the entire nation’s economy.
Greylisting
According to PwC, if South Africa is greylisted, the private sector will have to pay higher international transactional and compliance costs. The Financial Action Task Force (FATF) has given the country until October to fix the flaws in its legal system and legislative framework that help prevent financial crimes.
According to the report, if the FATF is to be reassured, the MTBPS should provide an unbiased and honest evaluation of the progress made as well as the remaining shortcomings. It quotes Intellidex’s October report, which suggested an 85% chance that South Africa would be placed on a greylist.
Backlog of skilled visas
From a financial and human resource capacity perspective, it states that the significant backlog in the processing of skilled visa applications must also be prioritized.
It mentions that administrative backlogs have caused months-long waiting lists for approval ever since the Department of Home Affairs (DHA) office in Pretoria became the sole location for processing visa applications.
According to the PwC, Godongwana is anticipated to provide funding and technical resources to assist the DHA in resolving the backlog issue.
Salary Pressure
Despite arguments in favor of and against a permanent basic income grant, PwC asserts that, in light of the nation’s socioeconomic difficulties, the framework for a thorough social security net must be outlined as soon as possible.
The report also makes note of the need for the MTBPS to emphasize that the government is sticking to its promise to lessen the pressure that its own compensation costs put on the budget.
But this comes after Statistics SA revealed that in the first quarter of 2022, basic salaries and wages earned in the community services sector increased by 2.9% year over year.
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According to the report, “this was below the national average of 3.8% year-on-year and lower than the consumer price inflation (CPI) rate that reached a 13-year high of 7.4% year-on-year in June, highlighting another year in which civil servants have seen their purchasing power decline.
A government strike this year would be the first significant industrial action in the sector since 2010, according to the report, which comments on the impending threat of industrial action in the public sector. According to the report, the potential strike will put Treasury’s resolve to lower wage bill growth from an average of 7.3% per year between 2014/15 and 2019/20 to 2.1% per year over the medium term to the test.
Infrastructure investment
According to the report, South Africa is falling short of the goals set forth in its National Development Plan (NDP) due to a lack of public sector funding for infrastructure, and much more private sector participation is required to ensure infrastructure rollout.
Although Godongwana mentioned in his budget speech for 2022 that 10 of the 61 projects in the Infrastructure Fund pipeline had made progress, it is noted that the MTBPS needs to give an update on the rollout.
Revenue accruals
According to the report, personal income tax data showing an 8.4% increase year over year in collections in the first half of 2022 confirms the beginning of a labor market recovery.
It mentions that during the second quarter, gross earnings across the formal non-agricultural economy increased by 4.5% year over year.
However, it claims that the increase in gross earnings was accompanied by an average CPI rate of 6.6% year over year. This indicates that the buying power of gross earnings will decline by 2.1% year over year in the second quarter of 2022.
On a more upbeat note, it claims that so far in the 2022–2023 fiscal year, corporate income tax collections have increased by 14.7%, as opposed to the 15.2% year-over-year decline in February that was initially anticipated.
Treasury originally predicted a 6% fiscal shortfall of GDP, but it has now calculated a 5.5% projection instead.
It states that although the 2022 budget called for a 14.6% increase in value-added tax (vat) to R440 billion, actual collections in the first half of 2022/23 were only 11.9% higher year over year.
Budget deficit
Due to significant fiscal budget deficits, PwC claims that the public debt is not anticipated to peak anytime soon, but rather to rise to 76.4% of GDP by 2025.
According to PwC SA Chief Economist Lullu Krugel, “Personal and corporate income tax collections have outperformed expectations in the 2022/2023 fiscal year so far.”
“Over the medium term, we also anticipate the fiscal deficit to gradually decrease. To get to a level below 3% of GDP, which is considered sustainable from a financing perspective, though, will take many years.
As a result, Krugel predicts that public debt as a percentage of GDP will keep increasing in the coming years.
