Budget preview: Revenue overruns to provide some breathing room
Thanks to the increase in the prices and volumes of our mining exports, we expect to see continued revenue overruns in the current fiscal year when Finance Minister Enoch Godongwana presents his budget next week. Our expectation is for an overrun of around R75bn, with decent tax collection across the board, but an especially strong performance from company income tax collection.
We expect revenue overruns to continue into the coming year. Our expectation for the next fiscal is for a revenue overrun of R55bn: a conservative estimate relative to some market participants, who expect buoyant commodity prices to result in a revenue overrun of more than R100bn.
However, despite the breathing room these overruns provide, expenditure pressures are mounting. We saw this in the November 2021 Medium-term Budget Policy Statement, where expenditure slippage over the Medium-term Expenditure Framework (MTEF) was budgeted to be R121bn: R59bn slippage has already materialised this year.
We believe there is likely to be additional spending slippage of at least R184.8bn over the MTEF. This includes slippage of R60bn for wages (R20bn for each year) and R121bn for the SRD grant (R41bn for each year). However, we don't believe they will pencil this into the budget. National Treasury will be careful not to front-run the wage negotiations. Therefore, our expectation is that they will keep the compensation numbers unchanged and will only pencil in the SRD grant for the next fiscal year, as was announced by President Ramaphosa in his State of the Nation Address last week.
National Treasury has placed R73.2bn in unallocated reserves over the next three year above the R15bn in the contingency reserve. In our view these reserves will continue to be in the budget as a contingency for the wage bill.
Overall, there will be an improvement in the main budget deficits driven mainly by the revenue overruns.
Evolution of main budget deficit
*Preview written by Sisamkele Kobus, Fixed Income Analyst, Ninety One.
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