South Africa Economic Outlook October 2023 – Fiscal perspectives ahead of the MTBPS
By PwC
We’re pleased to share our tenth South Africa Economic Outlook report for 2023.
South Africa’s fiscal environment has deteriorated since the publication of Budget 2023 (in February this year), with the last number of months seeing increased concern over the expected shortfall in government revenues during 2023/2024 alongside a deteriorated macroeconomic situation. Budget 2023 expected the South African economy to grow by 0.9% this year and 1.5% in 2024. At present, we forecast lower growth rates of 0.5% and 1.1%, respectively.
We expect a total tax revenue shortfall of up to R30 billion (c. $1.6 billion) in 2023/2024. That is a significant improvement over an earlier prognosis – around R50 billion (c. $2.6 billion) – following strong collections (+10.4% y-o-y) of Corporate Income Tax (CIT) during August. The month of August is an important one for understanding the CIT landscape as it includes the first provisional tax payments for companies with February year-ends.
The Medium Term Budget Policy Statement (MTPBS), set to be released on 1 November 2023, needs to specifically comment on how the 2023/2024 funding gap will be addressed. The finance minister has indicated that spending cuts and increased borrowing (not higher taxes) can be expected. PwC also anticipates that the minister will place greater responsibility on the South African Revenue Service (SARS) to improve compliance levels to bolster fiscal income over the medium term.
Key content in this report includes:
– Global context: Many African countries experienced increased fiscal pressures over the past six months.
– Local macroeconomic trends: The changing economic outlook from Budget 2023 to MTBPS 2023.
– Fiscal revenue shortfall: Likely smaller than initially expected after improved corporate tax collections in August.
– Narrowing the funding gap: Banking on improved tax compliance to improve the medium-term fiscal outlook.
– In the context of a constrained fiscus, a new public-private collaboration model (which PwC helped develop and implement) that allows South African businesses to support the delivery of key public services to their communities.
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