The government has made significant adjustments to its tax revenue collection targets for the 2023/2024 financial year, reducing them by more than R56bn. This decision comes as a response to the continued underperformance of the economy, which has necessitated cuts in spending. These figures were revealed in the medium-term budget policy statement presented by Finance Minister Enoch Godongwana.
Impact of Poor Economic Performance on Revenue Streams
Godongwana informed Members of Parliament that the tax revenue estimate he presented in his February budget has been revised down by R56.8bn. This is due to the drying up of revenue streams as a result of poor economic performance. The situation has been exacerbated by issues such as Eskom’s rolling blackouts, Transnet’s freight rail crisis, and other logistical problems within the economy.
Factors Affecting SARS’ Revenue Collection
Several key issues have affected the South African Revenue Service’s (SARS) ability to raise the projected revenue. These include a significant drop in corporate tax and an increase in value-added tax (VAT) refunds, among other factors. Godongwana stated that the “windfall tax” that the country has been enjoying due to recent years of commodity boom has “come to an end”. He further highlighted that mining provisional corporate tax collections fell by R24.6bn or 55% relative to the same period in 2022/2023.
Consequences of Dwindling Tax Revenue
As a result of the dwindling tax revenue, Godongwana announced that the National Treasury will cut budget allocations to government departments by R85bn over the next two years. In this financial year alone, conditional grants to municipalities, which are used to fund bulk infrastructure projects, have been immediately reduced by R3.4bn. Provincial direct conditional grants have also been slashed by R6.2bn. Despite these cuts, Godongwana managed to allocate R23bn to “labour-intensive departments” such as health, security services, and education, to help them implement the 2023 public sector wage agreement.