PwC: South Africa Economic Outlook 2022
By PwC
We look ahead at the annual Medium Term Budget Policy Statement (MTBPS) scheduled for 26 October 2022.
Budget 2022 planned for a 6.2% increase in Personal Income Tax (PIT) collections this year to R588bn. In the first six months of the period, PIT collections were actually 8.4% y-o-y higher. This is due to increased employment (+4.2% y-o-y in 2022Q2) as well as higher gross earnings (+4.5% y-o-y) across the formal non-agricultural economy remuneration. Furthermore, Corporate Income Tax (CIT) collections have increased 14.7% y-o-y in 2022/2023 to date, compared to a Budget 2022 forecast of a 15.2% y-o-y decrease. We have found that South African corporate revenues have been encouraging during 2022 so far. For example, PwC’s Major Banks Analysis September 2022 noted strong revenue gains across retail, business and corporate banking during the first half of the year.
We now expect a fiscal deficit equal to 5.5% of GDP during the current financial year. This is narrower than the National Treasury’s February forecast of 6.0% of GDP due to expectations of revenue overrun of around R50bn. We also expect the fiscal deficit to slowly narrow over the medium term. However, it will take many years to reach a level below 3.0% of GDP which is viewed as sustainable from a financing perspective. As such, public debt (as percentage of GDP) is forecast to continue rising in the years ahead.
Aside from the regular updates to revenue and expenditure forecasts, it is imperative that the MTBPS also updates South Africans on key challenges to economic and fiscal sustainability. We have identified six key factors, namely:
– A transfer of Eskom debt to the sovereign balance sheet
– Actions to avoid Financial Action Task Force (FATF) greylisting
– The backlog in processing critical skills visas
– A framework for a comprehensive social security system, which forms part of the basic income grant (BIG) debate
– Management of the public wage bill (currently under threat of a sector-wide strike)
– Progress with the Infrastructure Fund pipeline
The transfer of Eskom debt to the sovereign balance sheet, increased spending under a comprehensive social security system, a higher-than-expected public wage bill, and delays in crowding in private sector investment into the country’s infrastructure plans will all weigh on the fiscal outlook. At the same time, the backlog in processing critical skills visas and risk of greylisting are red flags for the economy (and fiscal revenue) growth outlook. As such, it is imperative that the National Treasury provides a clear update on these matters.
The biggest challenges to accelerating South Africa’s economic and employment growth are electricity load-shedding, a lack of skilled workers, and low private sector investment levels. Without addressing these, economic prosperity will remain elusive. The MTBPS has the opportunity to provide more clarity to South African businesses on what the government is doing to address these challenges which are weighing on business confidence and job growth.