The gap between government spending the tax base is too large, and this gap has likely increased due to the 2020 recession. This is according to the annual performance plan published by the National Treasury this week.
The difference between government spending and government revenue has increased greatly in 2020/21, the main budget deficit is now 12.3% of Gross Domestic Product (GDP) as is shown by data from the Treasury.
“Large adjustments to government spending are therefore required to return the public finances to a sustainable position. In addition, the impact of the Covid-19 pandemic economic contraction on South Africa’s public finances will be felt for years to come,” said Treasury
Gross debt is projected to reach 80.3% of GDP in this fiscal year, and will stabilise at around 88.9% in 2025/26.
Says Treasury: “Additional fiscal pressures from the broader public sector – including state-owned companies, social security funds and municipalities – remain unresolved.
“The fiscal trajectory is a major source of uncertainty and, along with unresolved structural reforms, keeps South Africa’s risk premium elevated, and thereby pushes up borrowing costs for the economy as a whole.”
While they cannot control South Africa’s fiscal pressures, the Treasury has made a commitment to improved tax collection.
“To improve fairness in the tax system, over the medium term, the department plans to propose amendments to tax policy that seek to meet government’s revenue requirements and eliminate tax loopholes,” said Treasury.
To this end the Treasury will investigate better tax designs for proposed amendments, as well as prepare discussion documents, host workshops and meet with affected parties.
Says Finance Minister, Tito Mboweni: “We remain committed to a well-functioning and efficient revenue collection agency,
“The South African Revenue Service (SARS) is one of the most critical public sector institutions in the country. I also wish to thank all South Africans who continue to honour their obligations by paying their taxes.
“Active management of government’s debt portfolio will mitigate external and domestic risks.”