Wednesday, January 19

Better-than-expected tax collections bode well for South Africa

The global growth story is quite positive, with South Africa’s developed markets and major trading partners expecting growth of more than 6% this year.

The South African economy has also shown positive growth over the past four quarters. This raises expectations that Finance Minister Enoch Godongwana will announce much higher tax collections in his Medium Term Budget Policy Statement (MTBPS) on Thursday (Nov 11).

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Read: Eight things to consider in the mini budget

Christie Viljoen, a senior economist at PwC, says that the tax collection could be 150 billion rand more than expected in the February budget. At the time, gross tax revenue was expected to be 1.2 trillion rand, with an expected deficit of 13 billion rand.

“This [higher-than-expected tax collection] it is largely the result of a mining tax windfall from growing global demand for commodities, ”he says.

“This will allow the government to reduce the fiscal deficit, unless it decides to spend all this extra money.”

Read: Sars Exceeds Revenue Targets (Apr 2021)

Viljoen adds that the GDP readjustment in August will also reduce the size of the fiscal deficit and public debt ratios. “We hope that the Minister of Finance does not waste this opportunity to reduce these ratios and embark on a path of real fiscal consolidation towards more sustainable debt levels.”

Load shedding

However, the relentless fall in cargo remains a key constraint to the economic outlook. It may well cost the country, which already has an uncomfortably high unemployment rate, another 350,000 jobs this year.

Listen to Fifi Peters’ interview with PwC’s Christie Viljoen (or read the transcript here):

PwC forecasts real GDP growth of 4.1% for this year compared to the more optimistic forecast of 5.3% from the Reserve Bank of South Africa.

PwC’s “bullish scenario” for better-than-expected results in the next 12 months includes no more loads being removed during the year, a vaccine launch at a daily average of 200,000 injections, and an increase in fiscal spending due to higher tax revenue. than expected.

“However, we are aware of the fact that economic forecasts for South Africa are always overly optimistic, and actual results are often less stellar than forecast projections,” says PwC in its October economic forecast.

The MTBPS is unusually late this year, mainly due to the local government elections that took place on November 1. This delayed the processing of tax bills by parliament, says Kyle Mandy, technical head of national taxes at PwC. However, he says this delay will not affect the budget process.

Necessary reforms

Angelika Goliger, chief economist at EY Africa, acknowledges the government’s focus on addressing the “major constraints” to economic growth. These include energy, transportation, water, spectrum allocation, and communications.

“While these reforms are critical and long overdue, there are also numerous smaller regulations and processes that make it much more difficult for companies to operate in South Africa,” she says.

She says reforms in the UK, where more than 3,000 regulations were removed or improved, resulted in an estimated annual savings for businesses of £ 1.2 billion.

Advance announcement

A long-awaited announcement in the mini-budget relates to the details of the government’s proposal to allow retirement fund members access to part of their long-term savings.

Blessing Utete, director of Corporate Consultants at Old Mutual, cautions that the announcement may not provide significant relief for indebted South Africans anytime soon.

The National Treasury said in August that redesigning the retirement system to allow limited withdrawals with mandatory retention is complex and requires extensive consultation.

The government has been working on a more structured two-part system that will allow restructuring of future contributions. One deposit will be held until retirement and the second will allow access before retirement during emergencies or extraordinary circumstances.

“Implementing any new system that allows for limited withdrawals with preservation will take time because in addition to prior consultation, legislative and fund rule amendments must be made and fund managers will also have to change their systems,” Treasury said.

According to Old Mutual, the average worker has accumulated less than R500,000 in retirement savings.

So getting partial access to this boat is unlikely to be enough to pay off substantial debt, such as a house or car, Utete says.

“One thing that seems certain is that members will not be able to access all or even a considerable part of their money.”

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