The global growth story is quite positive, with developed markets and South Africa’s major trading partners expecting growth in excess of 6% this year.
The South African economy has also been showing positive growth for the last four quarters. This raises expectations that Finance Minister Enoch Godongwana will announce far higher tax collections in his mid-term budget policy statement (MTBPS) on Thursday (November 11).
PwC senior economist Christie Viljoen says tax collections could be R150 billion higher than forecast in the February budget. At that point gross tax revenue was expected to be R1.2 trillion, with an expected shortfall of R213 billion.
“This [higher-than-expected tax collection] is largely as a result of a mining tax windfall on the back of the surging global demand for commodities,” he says.
“This will enable the government to reduce the fiscal deficit, unless it decides to spend all of this extra cash.”
Viljoen adds that the rebasing of GDP in August will also reduce the size of the fiscal deficit and public debt ratios. “We would hope that the finance minister would not squander this opportunity to reduce these ratios and start on a path of real fiscal consolidation towards more sustainable debt levels.”
However, unrelenting load shedding remains a key constraint on the economic outlook. It may well cost the country, which already as an uncomfortably high rate of unemployment, another 350 000 jobs this year.
Listen to Fifi Peters’s 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% by the South African Reserve Bank.
PwC’s “upside scenario” for better-than-expected outcomes over the coming 12 months includes no further load shedding for the year, a vaccine rollout at a daily average of 200 000 jabs and an increase in fiscal spending on the back of higher tax revenues than expected.
“However, we are cognisant of the fact that economic forecasts for South Africa are perennially too optimistic – and actual outcomes are most often less stellar than envisaged projections,” says PwC in its October economic outlook.
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 the draft tax bills by parliament, says Kyle Mandy, national tax technical head at PwC. However, he says this delay will not impact the budgetary process.
Angelika Goliger, EY Africa’s chief economist, acknowledges government’s focus on tackling “big-ticket constraints” on economic growth. These include energy, transport, water, spectrum allocation and communications.
“While these reforms are critical and long overdue, there are also numerous smaller regulations and processes that make it that much harder for businesses to operate in South Africa,” she says.
She says reforms in the UK, where over 3 000 regulations were either scrapped or improved, resulted in estimated annual savings for businesses of £1.2 billion.
A highly anticipated announcement in the mini-budget relates to details of the government’s proposal to allow working retirement fund members to access part of their long-term savings.
Blessing Utete, head of Old Mutual’s Corporate Consultants, warns that the announcement may not provide significant relief for indebted South Africans in the short term.
National Treasury said in August that redesigning the retirement system to allow for limited withdrawals with mandatory preservation is complex and requires thorough consultations.
Government has been working on a more structured two-bucket system that will enable the restructuring of future contributions. One bucket is to be preserved until retirement, and the second bucket will allow for pre-retirement access during emergencies or extra-ordinary circumstances.
“Implementing any new system allowing limited withdrawals with preservation will take time because in addition to prior consultation, legislative and fund rule amendments have to be done and fund administrators will also have to change their systems,” said Treasury.
According to Old Mutual the average worker has accumulated less than R500 000 in retirement savings.
Gaining partial access to this pot is therefore unlikely to be enough to pay off any substantial debt such as a house or car, says Utete.
“One thing that seems certain is that members will not be allowed to access all or even a sizeable portion of their money.”