Following on from President Cyril Ramaphosa’s 2022 State of the Nation Address (SoNA), Finance Minister Enoch Godongwana is expected to present a relatively ‘good news’ budget this week, owing to a considerable increase in revenue collection.

This was indicated by private sector economists, speaking during a Centre for Development and Enterprise-hosted post-SoNA/pre-Budget media briefing on February 21, during which Chatham House rules applied.

It was highlighted that there had been an increased collection of taxes by the National Treasury.

This impressive revenue performance was driven by a surge in corporate taxes, which are up considerably year-on-year, as well as compared to pre-pandemic levels, owing to high commodity prices benefitting mining companies.

Speakers said that, therefore, from a financial markets perspective, the Budget would be well received, owing to a strong corporate tax overrun, leading to a considerably lower budget deficit, which bond market investors would welcome.

Speakers said that, from an emerging markets perspective, this improvement in deficit was significant, as it would improve South Africa’s standing compared with other emerging markets.

Therefore, with the revenue base quite solid, speakers said risks were skewed a bit on the upside, given where commodity prices were currently sitting.

They highlighted that the country was in a relatively healthy revenue position, which suggested that the next 12 to 18 months should be relatively positive.

Moreover, the revenue surge is expected to reduce spending challenges.

One of the suggestions from the speakers was that the Treasury should use some of this extra revenue to pay off State-owned power utility Eskom’s debt; however, this would come with its own set of risks, such as requests from other State entities for additional funding.

This could present a fiscal risk.

Despite the short-term optimism, speakers mentioned that questions lingered over the long-term picture, which was still considered fragile, owing to the country's debt sustainability relying on the relationship between long-term growth and long-term real borrowing growth, speakers pointed out.

They highlighted that, for long-term sustainability, growth would need to be quite fast. While structural reforms to engender this were welcomed, and highlighted as positive, it was noted that there was still plenty of uncertainty about growth over the longer term, given that the reforms had long lead times before realising gains.

Reforms were expected to pick up momentum from 2023 onwards only, which would mean that better growth rates would only materialise from 2024, speakers explained.

Therefore, over the medium-term expenditure framework period conditions were expected to remain quite difficult, despite better revenue collections in the short term.

Moreover, there are also concerns that, while these reforms are good, and necessary, they are limited, and do not fully address many of the other structural issues impacting on growth in the economy.

It was also mentioned that the Treasury’s forecasting regime is now much more realistic and modest than previously, which plays a role in preventing the fiscal slippage that used to occur.

Other expectations include better control of non-interest spending.

Speakers expect the Treasury to stick to its expenditure guidelines and continue its fiscal consolidation path, as any deviation from this would be negatively perceived by markets.

Also, the Covid-19 relief grant is expected to be extended, with this to be provided for in the extra revenue that is projected.