Government revenue expected to drop

A drop in GDP figures which has kicked the economy into recession and lacklustre growth witnessed so far in the first half of 2017 driven in the main by agriculture will culminate into a drop in overall government revenue towards 2018.

These sentiments have been supported by Director of Research and Securities at Simonis Storm Purvance Heuer at the backdrop of their latest data that forecasts revenue to contract by 2.3 percent for the 2017/18 financial year.

“It is because the slower economic growth that we expect tax collections to be lower,” he says.

In financial figures, revenue is estimated to go down to N$51,851m in contrast to the estimated budgeted revenue of N$56,425mn.

“As a result, we expect the budget deficit to be N$9,149mn, eight times higher than the initial estimate of N$1,115mn as per the Estimates of Revenue, Income and Expenditure for FY2017/18. This is on account of outstanding invoices, some of which were not budgeted for,” says Simonis Storm.

Heuer is sure the construction which is already under severe pressure will bear the brunt of the revenue contraction as the economy enters its 2018 trading year.

The finance ministry seems not to share the same sentiments if recent statements by Calle Schlettwein are anything to go by.

He told industry experts recently that the sector will improve gradually with better recovery prospects anticipated in 2018 going forward.

In fact, the minister is currently optimistic as he is on record saying, “The worst appears to be over,” although he has not bolstered his zeal with significant data.

Meanwhile, VAT revenue is expected to contract by 18.5%, income tax revenue by 17.4%, and company tax revenue by 16.2% compared to government’s estimates of -5.1%, 12.5% and 11.1%, respectively. ?

The elephant in the room

The public wage bill continues to be eyed as a significant set back to revenue sustainability.

It currently represents an estimated 88 percent of operational expenditure, based on Simonis Storm’s calculations.

Operational expenditure is said to account an estimated 85 percent of total government expenditure for the 2017/18 financial year.

“In light of that, we believe cutting expenditure has reached its optimal level as additional spending cuts would result in political, social and economic risks. Signs of emerging risks related to those above could be associated with previous cases of late salary payments for some SOEs and the alleged delays in payments of medical aid premiums for some public servants,” warns the brokerage firm.