Investors have warned about the impact of load shedding on South Africa’s fiscus in the years ahead, saying that the woes brought about by rotational power cuts were yet to hit the tax revenue collection numbers.
This comes as Finance Minister Enoch Godongwana will next week table the Budget in Parliament in the midst of an unprecedented energy crisis that has severely crippled economic activity.
The Budget is expected to reveal that the country’s debt load has crossed the 70% mark of the gross domestic product (GDP), or has increased nearly R700 billion more.
Investec chief economist Annabel Bishop said the gross loan debt was likely to be projected near 71% of GDP for 2022/23 and run around 70.5% for the following three medium-term years of 2023/24 to 2025/26.
Bishop said Godongwana’s focus would be on the economic growth and revenue revisions, while expenditure pressures rise as the government grapples with the energy crisis and weak economic growth effects such as the need for the extension of the social relief of distress grant.
“Reigning in new expenditure pressures is key, as is making savings, avoiding wastage, inefficiency and inappropriate expenditure and focusing on economic growth creating initiatives, and spurring rapid repair of the electricity sector,” Bishop said.
“For 2022/23 out to 2023/25 the state will need to lower its revenue collection projections if it materially revises down its economic growth forecasts and so caution is needed, as this will have a compounding effect, and be credit negative.”
Over the past few years the government has increased its borrowings from international lenders to finance vaccine procurement and escalating social spending in the wake of the Covid-19 pandemic.
Allan Gray portfolio manager Thalia Petousis yesterday said while there might be scope for small positive revisions to the 2022/23 figure in the Budget, Petousis was concerned with the credibility of the National Treasury’s estimate for the outer years of the forecast period over 2024-2026.
Petousis said load shedding was heavily affecting economic activities, and it would be prudent to expect a significant negative impact on corporate profitability and resulting tax collections.
“While several mining houses and South African corporates are showing enormous resilience and foresight in terms of streamlining their operations and generating private power, reliance on emergency electricity supply via diesel-run generators is adding to cost pressures and compressing company profit margins,” Petousis said.
“The bleed-through into income tax collection has not yet been observed in the official budgetary numbers and is currently difficult to quantify.”
Last year, the National Treasury estimated that the current 2022/23 financial year main budget deficit would stand at R324 billion, or 4.9% of GDP from an initial estimate of 6%, moving closer to a balanced primary budget.
For now, tax collections remain buoyant across all primary tax types which is a real indication of the sustainability of increased tax collections by the SA Revenue Service.
Some economists predict that if current revenue collection trends hold for the rest of the fiscal year, the surplus for the year was likely to be in the ballpark of R45bn higher than the R83bn predicted in the medium-term budget.
Old Mutual’s Group head of tax, Nazrien Kader, however, said the predicted revenue overrun must be seen in the context of the massive deficit of R323bn budgeted for the 2022/23 fiscal year.
Kader said while this was all good news, the budget deficit remained too high as the medium-term budget projected the net debt to GDP ratio to stabilise at around 68.5% of GDP over the next three years.
“At the risk of stating the obvious, increasing the budget deficit would obviously weaken National Treasury’s message of fiscal discipline to the capital markets and rating agencies,” Kader said.
“The revenue overrun does, however, provide some room to manoeuvre. It is likely that the minister will resist calls to increase the budget deficit, maintaining the prudent fiscal policy he advocated in his medium-term budget.”
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