Mandy said up until 2008 South Africa was running small fiscal surpluses, but in the wake of the global financial crisis, the deficit grew to roughly 6%. While it has come down from these levels, it has remained fairly high.
The problem is not so much tax revenues, which have recovered to levels seen prior to the global financial crisis, but expenditure, which has increased “astronomically” since the crisis from levels of around 27% of gross domestic product at that point to nearly 34% of GDP, he said.
Increases in expenditure are exerting upward pressure on revenues, which is why tax increases were introduced last year and are also expected on Wednesday.
“The trouble that we face is there is still upward pressure on those expenditures – demands coming from various sectors of society for increasing government expenditure rather than reducing government expenditure,” he said.
Although the expenditure ceiling is under threat due to higher than expected inflation, PwC does not expect that government will increase the ceiling, but that the minister would rather introduce budget cuts in other areas.