Treasury missed its own GDP growth forecasts in nine of the last 12 years

Our finance ministers have an abysmal record when it comes to forecasting. In nine out of the last 12 years they have over-estimated growth, sometimes by inexcusably large margins.

The graph below tells the story. Admittedly, forecasting is never easy given the ever-changing nature of the economy, and the events of the last three years could hardly be described as normal. But the real whoppers were in the years preceding Covid, in 2018 and 2019.

Read: National Treasury’s GDP forecast is three times Sarb’s prediction

In 2019, for example, National Treasury forecast growth of 1.5% in the year prior to the budget, but the economy grew just 0.2%. That same year, both revenues and spending increased by 7% each, as the South African Revenue Service (Sars) embarked on a successful tax collection drive.

Source: National Treasury, Moneyweb

It was a similar story in 2018, when the economy was expected to grow at 1.5% but limped home with growth of 0/8%. That same year, revenue collections were up 5% and spending 7%.

This can only go on for so long

As several economists have pointed out, South Africa is running out of taxpayers.

At a recent presentation to the Free Market Foundation, economist Dawie Roodt pointed out that 163 702 individuals pay 30% of total personal income tax, which is National Treasury’s largest source of revenue. “You can’t increase this. If you increase this [taxpayers] will leave, and they’re leaving already,” he said.

Just 770 companies (0.09% of all companies) pay 62.5% of all company tax.

Roodt says this adds weight to the argument that there is no real company tax in SA, as only a fraction of companies pay any tax at all.

The table below shows the actual GDP growth figures against the forecasts made the prior year. Budget planning is based on these mostly erroneous forecasts.

Source: National Treasury, Moneyweb

More concerning over the longer term is the trend, with the state consuming an every larger share of the economy.

Government spending as a percentage of GDP has grown from around 12% in the 1960s to 35% in 2021, before easing to 32.5% in 2022.

The (slight) budget overshoot in 2021 was assisted by a remarkable performance from SA’s commodity producers and resultant increase in corporate tax collections. The steam has come off the commodity boom for the time being and recent results point to a sharp reduction in tax collections from the mining sector this coming fiscal year.

In the current tax year (2021/22), government collected R93.7 billion more than originally expected, on top of roughly R120 billion overcollected the prior year. That trend may not last much longer.

Knock-on effect

National Treasury and the South African Reserve Bank (Sarb) are at odds over the expected growth for 2023, with Sarb projecting growth of 0.3% against Treasury’s 0.9%.

Read: Power crisis: Sarb slashes GDP forecast in half for next two years

Thia poses the question whether, in the event that growth undershoots Treasury’s forecast, Sars will be able to squeeze additional revenue from an already exhausted tax base.

If not, the balance will have to be found through borrowings, and the budget deficit will likely exceed the 4% target for 2023/4.

The Sarb is typically more conservative in its outlook, though in this instance, Treasury’s 0.9% growth projection for 2023 is more in line with economists’ consensus, according to a recent Bloomberg survey.

The Sarb’s reason for downplaying growth this year is load shedding. “Given the scale of load-shedding, the [Reserve] Bank estimates that it deducts as much as 2 percentage points from growth in 2023, compared to the previous estimate of 0.6 percentage points,” said Sarb Governor Lesetja Kganyago in a statement in January this year.


Finance Minister Enoch Godongwana’s budget speech in February made 17 mentions of growth, emphasising “growth-enhancing reforms” and investment in infrastructure and crime fighting being the chief instruments to achieve this objective.

These growth-enhancing reforms include clearing the backlog in work visa applications, taking over a substantial part of Eskom’s debt so it can invest in transmission and distribution infrastructure while doing essential maintenance, speedier approvals for water licences, in addition to reforms in telecoms, water, energy and transport.

The National State of Disaster Regulations add further meat to these intended reforms, which appear to lay the groundwork for the accelerated privatisation of the energy grid.

The regulations remove impediments to the development of new generation capacity, and will cut red tape for new electricity generation projects. A single department will be created to process electricity generation applications, and it seems likely that maximum time frames for approvals will be regulated.

Some priority sectors will be exempted from load shedding, or granted reduced load shedding schedules. The key sectors identified for preferential treatment are health, police, education, food security, communications and water supply.

Without sufficient electricity, there is a hard cap on SA’s growth prospects.

Few investors will pay much attention to SA so long as load shedding remains a daily reality, and those that do will look to provide their own power.

All of this poses a problem to a government with ever-increasing demands for social spending. Some 60% of all spending in the latest budget goes to social expenditure, which includes education, social protection and health.