Budget deficit: we are in big trouble with a shortfall of R53 billion

South Africa is in big trouble as it has run out of money while government continues to spend more than it earns, a leading academic has said.

Although data from National Treasury shows the country’s monthly budget balance improved to a deficit of R47.3 billion in August government should take immediate steps to cut spending.

The Bureau for Economic Research (BER) at Stellenbosch University says the latest data was a slight deterioration compared to a deficit of R42.6 billion in August 2022.

“While the monthly data is influenced by a fair amount of seasonality, the fiscal year-to-date figures remain of concern.”

The data for April to August show gross tax revenue increased only 2.5% year-on-year. Compare this to an expectation in the February budget that gross tax revenue would increase 5.6% for the entire 2023/2024 fiscal year and it is clear that the country is in financial trouble.

The BER warns if the underperformance of tax receipts is maintained throughout the entire fiscal year, then it would mean a tax revenue shortfall of R53 billion relative to budget expectations.

“At the same time, main budget expenditure surged by 9.1% year-on-year in the period between April and August. The February budget had pencilled in expenditure growth of ‘only’ 1.5% for the entire 2023/24 fiscal year.”

The BER points out that the fiscal accounts are being hit on three fronts: lower tax revenue, higher expenditure and rising debt-service costs amid higher long-term global and domestic interest rates.

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‘We are now falling over fiscal cliff’ of budget deficit

Jannie Rossouw, a visiting professor at the Wits Business School, who has been warning government about this since 2014, says it is clear that government revenue is not what was budgeted for and therefore government must spend less.

“Government cannot keep spending fundamentally more than it earns. It must stop spending as we are now falling down the fiscal cliff. Borrowing more will not help because we will drown in the interest we have to pay on these loans.”

He also points out that government borrows from pension funds and everybody who is a member of a pension fund should, therefore, be concerned about the budget deficit.

“Government should stop spending money on failed state-owned entities. It poured R25 billion into SAA and has nothing to show for it. It is time to end these vanity projects of government and time to reduce cabinet and government departments.”

However, Absa’s economists say the deficit is slightly better than their forecast of a main budget deficit of R48.5 billion. The cumulative main budget deficit in the first five months of the 2023/2024 fiscal year amounts to R238.4 billion (or R254.4 billion, including Eskom debt-relief above the line), much higher than the deficit of R160.7 billion in the same period in 2022/2023.”

They forecast a main budget deficit of 6.6% of GDP (with Eskom debt-relief above the line) for the 2023/2024 fiscal year due to a combination of higher-than-budgeted expenditure and revenue shortfall.

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