The Tide Turns: South Africa’s Fiscal Outlook Improves Amid Weak Growth
South Africa’s latest government revenue and expenditure figures have exceeded expectations, raising hopes that the country remains on track to achieve fiscal consolidation this year — despite sluggish economic growth.
This is according to Stanlib Chief Economist Kevin Lings, who said the latest data from the National Treasury suggests that the fiscal situation is improving faster than anticipated.
Stronger-Than-Expected Revenue Performance
Government revenue for the first five months of the 2024/25 tax year has shown solid growth across key categories:
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Personal income tax: up 8.4% year-on-year
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Corporate tax: up 6.9%
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VAT receipts: up 11.4%, largely due to a reduction in VAT refunds
Lings said the numbers point toward a stable fiscal trajectory, adding that when the Medium-Term Budget Policy Statement (MTBPS) is released in November, the data should show progress toward consolidation.
“In other words, we’re managing to avoid a further deterioration in South Africa’s fiscal balances,” he explained.
Corporate taxes have been particularly strong, aided by commodity price movements. “If we look at where gold and platinum prices are, there could even be some upside surprise to corporate tax revenue as we get deeper into the year,” Lings noted.
While individual tax collections are steady rather than spectacular, they remain in line with budget expectations, despite weak job creation.
VAT Strength and Refund Bottlenecks
Lings highlighted VAT collection as a standout performer. However, he noted that much of this strength comes from lower refund payouts.
“SARS had indicated it would reduce the backlog of VAT refunds but hasn’t been especially effective,” he said. “While that’s not ideal, it has boosted the appearance of stronger VAT revenue.”
Expenditure Lagging Behind Budget
On the spending side, government expenditure remains below budget, which Lings said could be viewed in two ways.
“In a country struggling with infrastructure, underspending isn’t ideal,” he said. “But given how ineffective public spending has often been, a degree of restraint may actually be positive.”
The combination of stronger revenues and slower spending has left South Africa’s fiscal balance in better shape than many expected earlier in the year.
“You’ve got a fiscal balance that’s holding on reasonably well, and an element of fiscal consolidation that continues,” Lings said. “I don’t think we’re going to see significant fiscal deterioration, even though the economy is barely growing at about 1%.”
Outlook: Medium-Term Budget and FATF Decision
The Medium-Term Budget Policy Statement, postponed to 12 November, will offer a clearer view of the government’s fiscal position. The delay, Lings noted, stems from the late finalisation of the February budget.
Another important development is the upcoming Financial Action Task Force (FATF) meeting on 24 October, which will determine whether South Africa is removed from the grey list — a move that could significantly improve investor confidence.
A More Stable Fiscal Path
Despite slow growth and persistent structural challenges, Lings remains cautiously optimistic.
“If I look at South Africa’s fiscal parameters and the way the main budget numbers are being managed, you would say that’s a very decent outcome,” he said. “It puts us in a position where we can demonstrate ongoing fiscal consolidation and, hopefully, leverage that into more growth and improved confidence.”
For now, Lings said, the focus should remain on maintaining fiscal discipline while waiting for growth momentum to improve.
“It’s still tough going,” he concluded. “But at least tax revenue is holding up — even though the economy isn’t performing especially well.”
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