It was generally predicted that tax collections would tank in the last quarter of 2015/16 fiscal year resulting in a massive national deficit and an inevitable downgrade to junk status. This was not helped by the disappointing festive season December tax collection numbers.
Then on budget day the revised tax collection estimate for 2015/16 was within R11bn of the revised target of R1,06 trillion set in October 2015. SARS would be within 1% of target. That sounded inconceivable given that growth rates are currently below 1% when the 2015/16 national budget was based on a 2% growth rate. Commentators said ‘lets wait for the final numbers to be announced on 1 April 2016.’
And on 1 April the final numbers came out spot on at R1,069 trillion. That’s within R200 million of the revised estimate. Importantly, that’s money banked in the Central Revenue Fund, not an estimate.
This is worth some reflection.
The rating agencies must have been waiting for this announcement. And it must be worth a great deal in warding off the downgrade that so many have thought was inevitable. Political issues may be one thing. But making bank and showing that SA’s tax collections are in tact is completely another. Perhaps that will cut SA some much needed slack.
But there is even more to this story and it goes back nearly two years. Perhaps it is best disclosed with pictures from the Budget review and SARS statistics.
In 2012 SA’s national debt outlook trajectory was increasing dramatically but was forecast to reduce by 2015. It didn’t. SA can be forgiven for that. Nobody recovered quickly as the economists said it would.
The revised projections of 2013 also didn’t materialize and by September 2014 the debt trajectory showed no end in sight. So then Finance Minister Nene, started implementing austerity measures to at least level off the debt trajectory.
But predicting SA’s national debt trajectory, even in the medium term, is a tricky business. Even the IMF predictions were wrong.
The October 2014 trajectory, calculated by the IMF, was enough to blow the mind. But, just 6 months later, by April 2015, it was looking a whole lot better. And it still is.
So, ‘ the slip’ was nothing like as bad as originally forecast in September/October 2014. Why?
The plummet in tax buoyancy ratios of 2009 frightened everyone into believing that economic growth and tax collections are integrally related. But things have turned out differently. In short, South Africans all grumbled and consumer and business confidence dropped, but SA carried on with their favorite past time, spending money we mostly haven’t got. Thus, even though growth rates slowed to below 1%, tax collections are still within R11 billion of target for 2015/16. And that’s not an unusual prediction on budget day. It’s been R10bn or so below target on every budget day for the last 4 years.
In short, tax buoyancy ratios are not all they are cracked up to be. Tax collections are not that bad and neither is SA’ national debt. SA can perhaps afford to borrow just a little bit more.
So in the 2016/17 national budget speech the national debt trajectory has been allowed to increase a bit over the levels targeted in October 2014. That’s not an act of desperation. Rather, things are going a bit better than most of us think. We can only hope that the suits at the rating agencies will give SA credit for that.
All this shows that SARS and National Treasury have stuck to their knitting inspite of all the incoming missiles. Despite the rumours to the contrary tax enforcement is still ongoing and the tax acts are still being honed to contain the best efforts of some.
Perhaps the results are also attributable to the success of the Voluntary Disclosure Programme ‘VDP’. This initiative is yielding dividends as tax disputes are being settled and paid without years of litigation.
And then there comes another intangible. The increased standards of corporate governance achieved in SA today. Aggressive tax planning has, to a considerable extent, come off the boardroom agenda and today SARS is truly considered to be an important stakeholder in any business.
South Africa’s struggles are still far from over. As rock star economist Thomas Pikkety pointed out during his visit to SA, our problems are substantially different to the rest of the world, primarily because our population growth rate exceeds our economic growth rate. So achieving the ideals of the National Development Plan 2030 is going to take a lot of work by everyone.
The SARS tax collection numbers of 1 April 2016 shows that SA is not doomed some seem to will it to be. In fact SA is doing a damn side better than others like Brazil and Venezuela in these difficult times.