South Africa’s National Treasury has registered its most substantial budget deficit since 2004, a report from the National Treasury has revealed.
This revelation indicates a significant imbalance between government expenditures and revenues with the national debt in South Africa reaching R143 billion ($7.54 billion) at the end of July 2023, surpassing the R115.5 billion ($22.73 billion) forecast made by economists.
Several contributing factors are cited for this fiscal challenge, including:
- Inefficiencies in tax collection
- Excessive government spending
The budget deficit in South Africa is projected to reach 6.5% of GDP in 2023, which is higher than the 4% estimate that was initially presented when the budget was outlined in February 2023. In the past 17 years, South Africa’s national debt has seen a substantial increase, growing from R500 billion in 2006 to R4.7 trillion ($248.7 billion) in 2023. It is projected to further rise to R6 trillion ($317.4 billion) by 2025.
The nation’s Finance Minister, Enoch Godongwana, has suggested:
- A substantial reduction in expenditure
- A suspension of advertising for new hires
- A cessation of contract procurement for infrastructure projects, and
- A decrease in non-essential travel expenses
While the Treasury did not propose steps to enhance revenue collection, the government is already initiating such measures, focusing on remote workers and implementing stricter tax requirements for them.
In August 2023, the country was reportedly processing new tax laws – specifically the draft Tax Administration Laws Amendment Bill (Draft TALAB). Under the Draft TALAB, non-resident employers will have to register for employees tax.
“Given the need for urgent action, the National Treasury is left with little choice but to propose stringent measures to cabinet in respect of budget implementation and budget adjustments,” the Treasury said.
“Provinces are advised to introduce the same measures for their departments and public entities. National Treasury will soon engage with the South African Local Government Association and municipalities to implement similar measures. “
South Africa has emerged as a popular destination for remote work due to the relatively low cost of living and fair weather – while remote workers can also earn in dollars or pounds. This has, up until now, come without the burden of South African tax compliance.
Tax Consulting South Africa has expressed concerns over the new tax bill, stating that it will hurt the attractiveness of South African talent as it increases the overall cost to employ South African remote workers.
“This may also limit the foreign employer’s ability to pay South African workers in foreign currency,” Tax Consulting said.
The Treasury also recommended that the cost-cutting measures should be put into effect as early as mid-September 2023 and maintained until the national debt is brought under control.
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