Mini budget - Increased tax collection the silver lining in Godongwana’s Medium-Term Policy Statement

Better-than-expected revenue collection from companies and individuals has boosted South Africa’s public finances, with the gross tax revenue estimate revised up by R83.5-billion, to R1.68-trillion.

Finance Minister Enoch Godongwana released the Medium-Term Budget Policy Statement (MTBPS) speech on Wednesday, 26 October at Cape Town’s City Hall. 

He said improved revenue collection has not only bolstered the government’s cash position in the short term, but also helped it narrow the deficit and mitigate against lingering and new risks. 

Most of this tax windfall is expected to fall away over the next two years. As such, the government says it will not rely on “transitory” revenue gains to fund permanent spending hikes; rather, it will use them to reduce risks and contingent liabilities. 

Key concerns for the Finance Ministry are the country’s debt burden and debt-servicing costs: Godongwana says adopting a prudent approach to reducing debt will help stabilise public finances and reduce fiscal risks.

On revenue collection, Godongwana said gross tax revenue is now estimated to be R92.6-billion higher over the 2022 medium-term expenditure framework (MTEF) period compared to estimates presented in his February 2022 Budget, but it’s a projection associated with “significant uncertainty”. Such revenue projections have changed rapidly before, the minister warned, as seen during and after the Covid-19 pandemic, adding that any downward revisions would place the current fiscal strategy under significant pressure. If aggressive global monetary policy tightening results in an enduring slowdown in global growth, SA’s fiscal outlook could deteriorate as revenue collections falter and debt-service costs increase.

Structural economic constraints, such as an unreliable electricity supply, inefficiencies in network industries and a high cost of doing business, are an added threat to growth, and failure to address them could place additional pressure on the fiscus.

Key factors in the revenue collection include: 

• Higher profitability in the manufacturing and finance sectors, with historically high contributions from the mining sector;


• Large import volumes and prices contributing to strong customs duty collections;


• A recovery in earnings and better bonus payments for financial sector employees (although employment growth remains weak);


• Revised VAT collections as higher VAT refunds “more than” offset improved VAT receipt. VAT refunds averaged at R25.1-billion a month over the first half of the fiscal year, driven largely by higher capital expenditure in the finance sector and manufactured imports. Lower household disposable income weighed on domestic VAT collections.