National Treasury could be on track to have a better fiscal cushion for the 2020/21 budget than it initially projected.
It anticipated that the tax shortfall would be as much as R300 billion in the Medium-Term Budget Policy Statement in November 2020. But in a research note released on Monday,
HSBC Global Research says the shortfall does not look like it will be as high as first thought, as gross tax collection in November was up 3%, measured year-on-year.
HSBC now expects the tax shortfall to be R251 billion and the deficit to be 13.5% of GDP, as compared with a deficit of 15.7% projected in the MTBPS.
Tax revenues were primarily boosted by rises in value-added tax (Vat), fuel taxes and excise duties.
The rise in revenue coming from personal and corporate income taxes and taxes on international transactions was more muted.
The reduction in the tax shortfall along with Treasury’s willingness when it comes to issuing bonds will provide the government with a cash buffer and give it some protection against possible fiscal slippages.
Though the reduction in the tax shortfall is good news, HSBC notes that there was a 0.8% contraction in economic activity in November, when measured month-on-month.
This is the first contraction since the Level 5 lockdown resulted in economic activity slumping 40% in April and follows weak growth in September and October.
The bank notes that mining was the main driver of the decline, falling 5.7% month-on-month. There was also a broad-based decline in manufacturing output.
These sectors were not the only ones to face headwinds.
“Tourist income edged higher in November, but hotel occupancy rates remained below 20%, motor trade sales were flat [month on month], and the food and beverage industry saw spending nudge lower.”
This article first appeared on Moneyweb and was republished with permission.
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