Government debt to rise as tax revenues wobble
- Midterm budget: Will Gordhan find a rabbit in his hat?
- Public sector: Wage hikes put growth in jeopardy
- SA's elite will not be making the sacrifices
- Gloomy outlook ahead for South African economy
- Read the full speech here.
This comes amid growing concerns over an environment in South Africa of decreased revenues through tax collection.
"We've survived worse than this to get where we are today," the finance minister told reporters ahead of his medium term budget policy statement in Parliament on Thursday.
After conceding that the government's prediction for real gross domestic product (GDP) fell marginally from the 2012 budget projection of 2.7% to 2.5% for 2012/13, Gordhan said the treasury expected growth to recover in coming years.
"In the next year or two we can produce remarkable results in this country. There is nothing in the numbers to indicate that South Africa will fall off a fiscal cliff in the immediate future," he added.
Although muted in 2013 at 3%, Gordhan said the government projected growth to pick up to 3.8% in 2014 and 4.1% in 2015.
This will have to happen during a time of decreased tax earnings with revised projections on overall tax illustrating a drop of R5-billion in estimated income for the 2012/13 financial year.
Gordhan was quick to point out this implied a fairly robust increase of 10.6% in tax collections from the 2011/12 financial year.
Key drivers of the downward revision of tax revenue projections were found in a decrease in expected returns from personal and corporate income tax, as well as diminished expectations for earnings from mineral and petroleum royalties.
A further slide in anticipated tax earnings were prevented by an upward forecast in the revenue received from value-added-tax (VAT) and customs duties.
In order to maintain projected government expenditure through to 2016, Gordhan indicated a measured increase in government debt over the period.
Government debt will increase from R165.5-billion in the current financial year to R173.7-billion in 2013/14, before regressing to R151.5-billion in 2015/16.
This signifies total national government debt escalating from an estimated 35.7% in the current financial year to 37.7% in 2013/14 and 38.8% in 2014/15; before peaking at the precariously high level of 39.2% in 2015/16.
In accordance with this rising public sector debt, debt-servicing costs will increase from R89-billion in 2012/13 to R115-billion in 2015/16.
Nonetheless, Gordhan's statement projected the budget deficit to narrow towards 2015/16, falling from 4.5% of GDP to 3.1%.
Figures for total spending by government for the aforementioned period translates to approximately 8.2% growth annually.
The revised estimate of total expenditure for 2012/13 is R967.5-billion – R1.9-billion lower than estimated in the 2012 budget but still 8.9% higher than in 2011/12.
Gordhan explained that in order to bring the government's plans to fruition, resources and authority to spend funds will be stringently linked to project time frames and service delivery targets.
"Our budget process has to take into account that we cannot do everything at once and the economic outlook sets limits to what we can afford over the period ahead," he added.
Accordingly, Gordhan said it had been made abundantly clear to government departments that their spending ceilings would not be increased and any extra funds to process new or unexpected projects would have to be financed internally.
"Departments were told that if they want to do something different or unplanned for, don't just ask for more money," he said.
Expected total expenditure in the 2013/14 financial year equates to R1.24-trillion, rising to R1.34-trillion in 2014/15.
See the rest of the M&G's medium-term policy statement coverage:
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