I think the minister used his budget statement to sensitise all of us (both government and the general public) on the economic challenges that lie ahead.
It is clear that there is a possible R60 billion revenue shortfall in the current financial year that will influence South Africa’s medium to long term economic plans.
The anticipated challenge which has come about as a result of a R9 billion shortfall in corporate taxes by collection deadline as well as both the low VAT and customs collections, necessitates a review of state departmental budgets by all ministers to find possible fat. Remember that the shortfall in revenue was estimated to be around R94 billion in February but it is clear that it will be between R144 billion and R154 billion in march 2010.
However, one must not despair too much as these are 1st quarter figures. The October budget statement may be completely different and I mean either worse or better. It is also important to note that albeit undesirable to do so, but the deficit can be covered by either domestic or foreign borrowing although this option will not be without negative consequences to the future finance and economic plans.
My view is that since we have such a huge deficit, a higher sub 6% inflation and a possible 2% economic contraction, we need to revisit our economic figures at least for the medium term and perhaps re-budget using 2% economic contraction as our base. I also think that even if the recession cycle was to turn this year, the GDP will be lower than anticipated at least for the next 3 to 4 years. So let’s plan as such. We will have to be creative in generating income as our tax base is shrinking.
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