Gigaba faces R50 billion budget shortfall - economist

(iStock)
(iStock)

Cape Town - South Africa’s budget is facing a "hole" of about R50bn despite tax hikes, according to emerging markets economist Peter Attard Montalto of Nomura. 

In an update to investors on Friday afternoon, Montalto said that despite the February Budget’s inclusion of R28bn of tax hikes, it was “failing to keep revenue above water”.

“Overall, we think there is a budget hole of around R50bn for this fiscal year, which is higher than our previous estimate of R30bn,” said Montalto. 

A R50bn budget hole corresponds to about 1.1% of South Africa’s gross domestic product. 

“The National Treasury would argue that growth will recover through the fiscal year and it will with the Q2 (second quarter) stronger than expected, but we do not see that being maintained with a fall back in H2 (the second half of the year).”

Montalto said revenue underperformance had been widespread.

“A decent start to the year in Value Added Tax (VAT) has been helped by delayed VAT refunds being processed.

Personal income taxes have been significantly underperforming the last three years (on) average, even as higher unemployment and stalled wage growth offset the bracket creep and new top rates of income tax,” he said. 

Montalto said that the budget hole would likely be sustained into 2018.

This would place particular stress on the Treasury, if government were to also introduce free higher education for all university students, he said. 

According to the South African Institute of Race Relations, free higher education for all tertiary students in South Africa would cost in the region of R71bn per year.  

The budget shortfall and the possibility of of government having to pay for free higher education would require “deeper cuts elsewhere to remain within the expenditure ceiling” in the 2018 budget, said Montalto.  

He noted that R15bn of unspecified tax hikes had been pencilled into next year’s budget, but said more was “clearly needed”.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.


Read Fin24's top stories trending on Twitter:




We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
16.19
(-0.10)
ZAR/GBP
21.11
(-0.12)
ZAR/EUR
19.19
(-0.12)
ZAR/AUD
11.55
(-0.13)
ZAR/JPY
0.15
(-0.14)
Gold
1901.55
(+0.01)
Silver
24.57
(+0.10)
Platinum
902.03
(+0.40)
Brent Crude
41.85
(-1.66)
Palladium
2378.04
(+0.61)
All Share
55339.58
(+0.99)
Top 40
50692.28
(+0.83)
Financial 15
10790.70
(+3.99)
Industrial 25
74905.70
(+1.05)
Resource 10
52561.57
(-0.49)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
24% - 68 votes
No, I did not.
52% - 148 votes
My landlord refused
24% - 70 votes
Vote