South Africa’s upside revenue surprise may help pay for vaccines

South African revenue collections that are expected to overshoot budget estimates could take the pressure off the National Treasury to raise taxes to pay for the acquisition and rollout of coronavirus vaccines.

Total tax revenue for the first nine months of the fiscal year is R875.7 billion, according to National Treasury data. While that’s 10.6% lower than the same period in 2019-20, it compares with a 17.9% shortfall projected for the full year in October’s medium-term budget policy statement.


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If the trend in tax collections continue for last three months of the fiscal year, the extra revenue could be as much as R106.5 billion, Johann Els, the chief economist at Old Mutual Investment Group, said in a note. “Should even a portion of this windfall be realised, I see no need for government to raise taxes in this case, as has been suggested as a means to fund the vaccine rollout.”

Read: South Africa failed to get its act together on vaccines: here’s how

It could cost as much as R24 billion to vaccinate 40 million people, or around two-thirds of South Africa’s population, according to the National Treasury. The country’s biggest companies are in talks with government to help finance and facilitate the rollout of vaccines and medical insurers are expected to pay to vaccinate their members and subsidise the cost for an equal number of non-members.

In addition to raising taxes, the Treasury’s options to fund vaccines include increasing borrowings, re-prioritising existing budgets and using available cash in government’s bank accounts. Finance Minister Tito Mboweni will announce details in the budget on Feb. 24, the Treasury said.

What Bloomberg economics says:

“The medium-term revenue assumptions remain optimistic, making them subject to considerable risk — especially if growth continues to disappoint.” — Boingotlo Gasealahwe, Africa economist

“The National Treasury has built up cash balances over the last year of about 150 billion rand, they can draw down on those cash balances so we don’t need to issue more or tax more,” said Jeffrey Schultz, a senior economist at BNP Paribas South Africa. “We’ve got the funds, we just need to allocate it in the budget framework.”

However, a windfall on 2020-21’s revenue collection may not be enough eliminate the need for tax increases in coming years, with a budget deficit that’s still projected to be more than 10% of gross domestic product in the 12 months that start April 1 and increasing demands on the state purse. The Treasury said in June, long before the country started ordering vaccines, that it plans to raise an additional 40 billion rand in taxes in the medium term.

“Revised estimates of the revenue collected for the 2020-21 year, as well as the implications for the pre-announced tax increases, will be announced in the budget review,” the Treasury said in response to questions this week.

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