South Africa’s Upside Tax Surprise May Help Pay For Vaccines

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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 875.7 billion rand ($58 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.

Read more: S. Africa’s Revenue Collection for April-Dec. Down 10.6% y/y

If the trend in tax collections continue for the last three months of the fiscal year, the extra funding could be as much as 106.5 billion rand, Johann Els, the chief economist at Old Mutual Investment Group, said in a note. “Should even a portion of this windfall be realized, I see no need for government to raise taxes in this case, as has been suggested as a means to fund the vaccine rollout.”

It could cost as much as 24 billion rand 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 subsidize the cost for an equal number of non-members.

Click here to access the Bloomberg Vaccine Tracker

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

Read more: S.Africa Will Be Able to Pay for Covid-19 Vaccines: Treasury

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 to eliminate the need for tax increases in coming years. The budget deficit is still projected to be more than 10% of gross domestic product in the 12 months that start April 1 and there are increasing demands on the state purse, including from cash-strapped state-owned companies.

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.

©2021 Bloomberg L.P.

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