Treasury has to find ways to plug VAT hole before tabling new budget on 21 May

Motheo Khoaripe (in for Stephen Grootes) is joined by the Director General of National Treasury, Duncan Pieterse.

Finance Minister Enoch Godongwana has announced that a new national budget will be tabled on 21 May, after the failure of two previous attempts over the controversial proposal to increase Value-Added Tax (VAT).

Going forward, National Treasury’s focus will be to start with balancing the budget by managing costs better.

Mbalula says the new budget won’t include VAT adjustment

'We must do more with less' the Minister said, along with strengthening revenue collection.

On The Money Show, Treasury Director General Duncan Pieterse explains the technical process involved leading up to the tabling of the budget.

It starts with feeding fiscal assumptions, mainly related to spending, into their macroeconomic forecast.

While in this case certain elements of the budget already tabled can be retained, estimates in the macroeconomic forecast will need to be updated.

"This is in particular because since we tabled the last budget, global growth has been revised downwards, and several other high frequency indicators that we typically use to compile the forecast will have changed."

"This then goes through an internal process where once the macroeconomic forecast is completed our colleagues in the tax policy division then do the revenue estimates. From there we develop the borrowing numbers or the debt strategy and that then goes back into the budget office to finalise the fiscal framework."

Duncan Pieterse, DG - National Treasury

Beyond these technical processes, the fiscal framework also has to be taken back to Cabinet, there have to be consultations with the Financial and Fiscal Commission (FFC) and also the Budget Council in Parliament.

This all has to be done within the next few weeks to make the 21 May deadline.

Godongwana has referred many times to the R75 billion gap over the next three years that will be left by the reversal of the planned VAT hike.

Pieterse says one tool Treasury is looking at to plug this hole, is expenditure adjustments.

"We can look at the expenditure additions that were announced in the previous budget - the way to think about this is all departments have their departmental baselines, as do provinces and so on. Certain additions to those baselines were proposed, so the starting point will be which can be foregone in order to ensure that the budget we table on 21 May is still in line with the overall fiscal goals that we have set for ourselves."

Duncan Pieterse, DG - National Treasury

Treasury will also signal what other revenue sources are available which can be returned to in the next budget and over the medium term.

The challenge is to compensate for the VAT increase in the short term, Pieterse says.

"There are some very interesting revenue proposals that have come through as part of the consultation period of the last few weeks. To the extent that any of those are viable in the short or medium term, the Minister will make an announcement on the 21st."

Duncan Pieterse, DG - National Treasury