Narrowing deficit eases need to borrow

taxation 2Authors: Ntsakisi Maswanganyi and Linda Ensor (BDlive)

Higher than expected tax revenues and lower government spending has helped narrow the budget deficit and will bring down borrowing by the government. The main budget deficit which covers all three spheres of government is now estimated at 4.3% of gross domestic product (GDP) from 4.7%, the Treasury said on Thursday.

This reduces the amount the government needs to borrow to finance its spending while satisfying ratings agencies that it was on track to bring down its large deficits. However, questions remain on how sustainable the narrowing was.

The consolidated budget deficit which takes into account departmental revenues, national revenue fund receipts, provinces and social security funds was now estimated at 3.5% of GDP, or R137bn, which was R15bn less than projected earlier in February.

Lower deficits were good news for SA as they pointed towards “prudent fiscal management,” one of the main items ratings agencies had been “hammering SA” on, said economist at Efficient Group Francois Stofberg.

He said although the deficits were still sizeable compared to GDP growth, smaller deficits should translate into a smaller increase in debt.

However, Rand Merchant Bank fixed-income strategist Carmen Nel said the market would likely view the downward revisions as marginal.

The combination of higher tax revenues and lower spending translated into a lower borrowing requirement of R167.8bn compared with an earlier estimate of R180.9bn, the Treasury said.

The South African Revenue Service was able to collect tax revenue of R986.3bn in the 2014-15 year despite its leadership challenges.

This was R7.4bn higher than a revised estimate.

If the government kept wage increases low, it would most likely be able to achieve its budget deficit targets for the coming fiscal years, said Mr Stofberg.

The Treasury forecasts a consolidated budget deficit of 3.9% of GDP in the 2015-16 year, 2.6% in 2016-17, and 2.5% in 2017-18.

Finance Minister Nhlanhla Nene said in Parliament on Thursday progress was being made in the current round of public service salary negotiations.

He said the wage settlement needed to be fair and reasonable; take into account the overall position of the fiscus and the economy; and be balanced between remuneration and employment growth.

The revisions to the budget deficit figures came after departments closed their accounting records for the 2014-15 fiscal year, which revealed actual expenditure to the end of March.

The Department of Social Development underspent by R800m and the Department of Co-operative Governance and Traditional Affairs by R4bn.

Mr Nene said the measures to address municipal debt to Eskom had achieved results. The Treasury decided earlier this year to withhold equitable share transfers to 59 municipalities with long-standing arrears to Eskom. Agreements had been reached with 20 municipalities and the funds could now be released, Mr Nene said. Discussions were continuing with the remaining municipalities to resolve the matter before the end of June.

The Treasurys economic growth forecast for 2015 remained unchanged at 2%, Mr Nene said. The low forecast was blamed on the sluggish global recovery and domestic constraints, particularly the lack of sufficient electricity.

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