Difficult times ahead as budget deficit widens to 4.3%

Wednesday, October 25, 2017

Government’s consolidated budget deficit is set to widen to 4.3% this year, the National Treasury said on Wednesday.

In its Medium Term Budget Policy Statement documents, the National Treasury attributed this to a sharp deterioration in revenue collection and further downward revisions to economic growth projections, which it said significantly eroded government’s fiscal position.

The National Treasury said tax revenue is projected to fall short of the 2017 Budget estimate by R50.8 billion in the current year, the largest under-collection since the 2009 recession.

At the same time, additional appropriations of R13.7 billion have been agreed to forestall calls against guaranteed debt by the creditors of South African Airways (SAA) and the South African Post Office.

“These are partially offset by use of the contingency reserve, as well as projected underspending. 

“As a result of these developments, the consolidated budget deficit will widen to 4.3% of GDP in 2017/18, against a 2017 budget target of 3.1% of GDP.”

The widening of the budget deficit comes after years of expenditure restraint after government imposed state-wide austerity measures with an aim of putting an end to abuse and to save resources that can be directed to priority spending areas.

The National Treasury said government’s short-term options to reverse this situation are limited.

“Given that per capita income is falling, the economic impact of further expenditure cuts or tax hikes could be counter-productive. 

“Following several years of expenditure restraint, further budget cuts will involve hard choices and difficult compromises.

“Sudden or deep additional cuts that are not well-targeted could put severe pressure on already stressed departmental budgets.”

The National Treasury said some national departments are battling to operate within the compensation limits set by Parliament in the current year.

Added to this, several provincial departments are running up unpaid bills to maintain service delivery levels. 

At the same time, government is acutely aware of the dangers of unchecked debt accumulation.

Debt-service costs are the fastest-growing category of expenditure, crowding out social and economic spending. By 2020/21, nearly 15% of main budget revenue will be spent servicing debt.

The National Treasury estimates that stabilising gross debt below 60% of GDP over the coming decade will require spending cuts or tax hikes amounting to 0.8% of GDP. In 2018/19, 0.8% of GDP would amount to R40 billion. – SAnews.gov.za

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