Budget Speech 2022 The Fiscal Framework

 

Revenue collection

 

Tax collections since the time of the MTBPS have been much stronger than expected.

 

We now estimate tax revenue for 2021/22 to be R1.55 trillion.

 

This is R62 billion higher than our estimates from four months ago, and R182 billion higher than our estimates from last year’s Budget.

 

This follows a shortfall of R176 billion for 2020/21 when compared to the 2020 Budget forecasts.

 

This positive surprise has come mainly from the mining sector due to higher commodity prices.

 

Madam Speaker, one swallow does not a summer make.

 

The improved revenue performance is not a reflection of an improvement in the capacity of our economy.

 

As such, we cannot plan permanent expenditure on the basis ofshort-term increases in commodity prices.

 

To be clear, any permanent increases in spending should be financed in a way that it does not worsen the fiscal deficit.

 

We have also seen higher revenue from other sectors and other tax instruments, such as personal income tax and value-added tax.

 

Madam Speaker, this year marks the 25th anniversary of the establishment of the South African Revenue Service.

 

SARS plays a vital role in the economy, and we congratulate them on this momentous occasion.

 

We also welcome the current modernisation of its infrastructure at border posts, such as Beit-bridge to facilitate greater trade.

 

The fiscal outlook

 

Honorable Members, more than R308 billion has been directed towards bailing out failing state-owned companies.

 

Since 2013, frontline services and infrastructure reduced by R257 billion.

 

In this Budget, we are shifting from this trend, and are restoring our focus on the core functions of government.

 

We are also on course to close key fiscal imbalances and restore the health of public finances.

 

Our debt burden remains a matter of serious concern.

 

This year, government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term.

 

This huge sum is owed to lenders domestically and around the world!

 

It incurs large debt-service costs; averaging R330 billion annually over the MTEF.

 

These costs are larger than spending on each of health, policing or basic education.

 

For this reason and to support the economic recovery, in this budget we are reducing the fiscal deficit and stabilising debt.

 

The consolidated budget deficit is projected to narrow from 5.7 per cent of GDP in 2021/22, to 4.2 per cent of GDP by 2024/25.

 

We now expect to realise a primary fiscal surplus – where revenue exceeds noninterest expenditure – by 2023/24.

 

The debt ratio will stabilise at 75.1 per cent of GDP by 2024/25. This is 3 percentage points lower than we had projected when we tabled the MTBPS.

 

This is also the first time since 2015 that we are reducing the borrowing requirement, using some of the extra revenue we have collected.

 

The borrowing requirement decreases by R135.8 billion this year and a total of R131.5 billion over the next two years.

 

Risks to the fiscal framework

 

Though the fiscal outlook has improved, it is subject to significant risks.

 

These include:

 

We need to stay vigilant and mitigate the risks where possible.

 

In the upcoming period, we will do more work to strengthen fiscal anchors.

 

We will also reduce the continual demands on South Africa’s limited public resources from state-owned companies.

 

For this reason, SOCs need to develop and implement sustainable turnaround plans.

 

The future of our state-owned companies is under consideration by the Presidential State-Owned Enterprises Council.

 

Their future will be informed by the value they create and whether they can be run as sustainable entities without bailouts from the fiscus.

 

Some state-owned companies will be retained, while others will rationalized or consolidated.

 

To reduce their continuing demands on South Africa’s public resources, the National Treasury will outline the criteria for government funding of state‐owned companies, during the upcoming financial year.

 

This, Madam Speaker, is what we mean by tough love!

 

We are aware that Eskom’s debt situation remains a concern for its creditors and our investors alike.

 

Government continues to support Eskom to remain financially sustainable during its transition.

 

To date, Eskom has been provided with R136 billion to pay off its debt with a further R88 billion until 2025/26.

 

We acknowledge, however, that Eskom is faced with a large amount of debt that remains a challenge to service without assistance.

 

The National Treasury is working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders.

 

Any solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring.

 

We expect Eskom to take further steps towards cost containment, conclude the sale of assets and implement operational improvements to enhance the reliability of electricity supply.

 

The outcome of this work, which is legally and technically complex, will be announced within the next financial year.

 

Madam Speaker, we have taken action to reform the electricity sector. This encompasses the lifting of the registration threshold of embedded generation to 100 megawatts.

 

It also includes amendments to the Electricity Regulation Act of 2006, and the new generation projects that are coming online over the next few years.

 

These interventions demonstrate our commitment to solving South Africa’s electricity supply challenges.