JOHANNESBURG - South Africa’s tax revenue for the current financial year will be R8.7 billion (US$528.1 million) lower than estimated in June and collection looks set to remain weak for years to come, Finance Minister Tito Mboweni warned on Wednesday in the medium-term budget policy statement.
Overall, tax revenue is expected to come at R312.8 billion below what was forecast in Mboweni’s February budget, tabled just a month before the government imposed a nationwide lockdown in response to the Covid-19 pandemic.
Mboweni said the growing shortfall in revenue widened the already unacceptable gap between state spending and tax income, hampering efforts to return public finances to a sustainable footing.
“The tax-to-GDP (gross domestic product) ratio is expected to decline substantially, dropping from around 26.3 percent to 22.9 percent,” he said.
It would require a sustained rebound in economic growth to return the tax-to-GDP to where it was in 2019/20, he added.
The National Treasury’s MTBPS, which Mboweni tabled before Parliament, warned that the impact of the economic crisis triggered by the Covid-19 crisis would be felt “for years to come”.
The economy is expected to contract by 7.8 percent in the current financial year, with GDP growth forecast to rebound to 3.3 percent in 2021, and an average 2.1 percent over the medium term.
“Based on this projection, the economy will only recover to 2019 levels in 2024,“ the National Treasury said.
The renevue contraction added to the arguments advanced by Mboweni to trim government spending, which he proposes to do primarily by tackling the bloated public wage bill.
“Government spending remains too high for the tax base – and this gap has likely increased as a result of the 2020 recession,“ Mboweni said.
Recent tax increases had yielded less revenue that expected and there were indications that tax increases could dampen GDP growth, he added.
African News Agency (ANA)