National Treasury could be on track to have a better fiscal cushion for the 2020/21 budget than it initially projected.
Treasury anticipated that the tax shortfall would be as much as R300 billion in the Medium-Term Budget Policy Statement (MTBPS) in November 2020.
But in a research note released on Monday, HSBC Global Research says the shortfall does not look like it will be as high as first thought, as gross tax collection in November was up 3% when measured year on year.
HSBC now expects the tax shortfall to be R251 billion and the deficit to be 13.5% of GDP, as compared with a deficit of 15.7% projected in the MTBPS.
Tax revenues were primarily boosted by rises in value-added tax (Vat), fuel taxes and excise duties.
The rise in revenue coming from personal income taxes, corporate income taxes and taxes on international transactions was more muted.
The reduction in the tax shortfall along with National Treasury’s willingness when it comes to issuing bonds will provide the government with a cash buffer and give it some protection against possible fiscal slippages.
A tough November
Though the reduction in the tax shortfall is good news, HSBC notes that there was a 0.8% contraction in economic activity in November, when measured month on month.
This is the first contraction since the Level 5 Covid-19 lockdown resulted in economic activity slumping 40% in April and follows weak growth in September and October.
The bank notes that mining was the main driver of the decline, falling 5.7% month on month, mostly as a result of a tightening in the platinum group metals sector. There was also a broad-based decline in manufacturing output.
These sectors were not the only ones to face headwinds.
“Tourist income edged higher in November, but hotel occupancy rates remained below 20%, motor trade sales were flat [month on month], and the food and beverage industry saw spending nudge lower.”
The value of building completions plunged to its lowest since June, and the impact of the lockdown on the hospitality sector “remains pronounced”, with tourism income down 67% year on year and restaurant spending 50% lower.
HSBC does not expect a quick recovery.
“We forecast a marked slowdown in GDP growth from the strong rebound in the third quarter, but still expect the economy to expand at an annualised rate of 6.5%.”
The poor performance of smaller businesses in November is also not a good indicator.
“Small business turnover data suggest there may be worse to come at the start of 2021, amid the second wave of Covid-19 infections and renewed lockdown restrictions, although there are signs that the second wave peak may have been passed.”