SA to miss growth target

Johannesburg. – Finance Minister Nhlanhla Nene says the economy will not reach the 2,7 percent growth the Treasury forecast in February, which is putting the fiscal outlook under “increasing pressure”.
Mr Nene said on Tuesday it was becoming evident that the economy was not going to grow “as fast as we had anticipated”.

Weaker economic growth implies lower revenue collection, although Mr Nene expressed confidence the South African Revenue Service (SARS) would obtain the almost R1-trillion it has been given the task of collecting.

The Treasury estimated that tax revenue would recover to grow at an average 10,4 percent over the medium term.

A range of factors set South Africa’s economy back, including a five-month strike at platinum mines, and power outages that have disrupted output in the mining and manufacturing sectors.

Relief over the conclusion of the platinum miners’ strike last week proved short-lived after about 220,000 members of the National Union of Metalworkers of South Africa in the steel and engineering sectors began an indefinite wage strike on Tuesday.

Mr Nene said economic growth could be compromised further by the metal workers’ strike. Strikes needed to be resolved “quickly” and in an “amicable way” if further damage to the economy was to be avoided.

The economy contracted 0,6 percent in the first three months of the year, and many economists are expecting a further contraction in the second quarter, which would push South Africa into recession.

Old Mutual Wealth chief investment strategist Dave Mohr said the renewed labour action meant “we are entering the third quarter on a depressed note”.

The strike came as the Kagiso purchasing managers index (PMI) — an indicator of activity in manufacturing — showed the sector probably contributed poorly to second-quarter growth.

The average Kagiso PMI for the second quarter stood at 46,1 index points compared with the first quarter’s 50,6. The index needs to be above 50 to indicate expansion in activity.

It rose on a monthly basis but remained below 50 at 46,6 points. Weak growth in sectors such as manufacturing supports forecasts that economic growth will be moderate this year.

Mr Nene admitted that the tax revenue target of R993,6bn was a significant challenge to SARS, given the weak economic growth environment.

He said, however, that SARS had reached similar difficult targets.

But some economists are not as optimistic.

Cadiz Asset Management economist Adenaan Hardien said the challenge was that the revenue projections were based on forecasts for a stronger economic growth performance, which was unlikely to be realised.

Mr Mohr said tax revenue could come “under pressure” as the year progressed, which could see budget deficit targets being missed.

“Unless there is tighter control on the spending side, the budget deficit could be higher than what was projected at the time of the budget in February.” The Treasury forecast a budget deficit of 4 percent of gross domestic product in the 2014-15 fiscal year, based on growth of 2,7 percent.

SARS acting commissioner Ivan Pillay said taxpayer compliance remained top of the agenda to ensure SARS collected the tax revenue budgeted for.

He said areas of particular focus included medical aid claims, retirement fund contributions, income protection contributions, and revised returns for previous tax years.
He said personal income tax contributions amounted to 35 percent of total tax revenue, company income tax 22 percent, and value added tax 26 percent.

Mr Pillay did not expect a change in collection patterns.

He said the target was traditionally adjusted during the medium-term budget policy statement.

He said that in an effort to reach the target, SARS would continue efforts to cut tax leakage through fraudulent transactions, and would react faster to transgressions in the illicit economy.

More than 6,4-million tax returns were submitted in the 2013-14 tax year, an increase of 3,8 percent on the previous year. – Bdlive.