First-half fiscal balances show budget forecast is on track

Johannesburg - The latest data on state income and spending, released on Wednesday, showed that government revenue remained “elevated” and expenditure “sufficiently subdued” in September, according to Econometrix chief economist, Azar Jammine.

Coming soon after Finance Minister Pravin Gordhan’s medium-term budget policy statement last month, the figures confirmed his relatively positive forecast that the budget deficit – the gap between government spending and revenue – in the 2013/14 fiscal year would not exceed the budget forecast of 4.2 percent of gross domestic product.

It could be even better at 3.9 percent if the current revenue and spending trends continued, Jammine said. But he questioned whether the “solid revenue growth”, recorded in the first six months of the fiscal year, could be sustained. He noted that company and personal taxes had overshot the budget projections, countering negative trends from other sources of revenue.

He said the performance of personal taxes was “not altogether surprising bearing in mind that financial asset prices have been doing well in the wake of US quantitative easing policies. Both dividends and capital gains are, therefore, still increasing at a fair pace.”

But he expressed concern about companies’ ability to contribute at the same pace, citing a sharp decline in mining revenue as a result of strikes.

And he highlighted the disappointing performance of other sources of revenue. VAT revenue grew 12.1 percent in the first six months, down on the 13 percent growth budgeted for the full fiscal year. The take from the fuel levy rose 4.5 percent, compared with the budgeted 11.3 percent. Revenue from excise duties was even worse, falling 5 percent instead of growing 10 percent.

“What these figures imply is that the reduced level of growth in consumer spending this year has left growth in government revenue from indirect taxes well short of budget,” Jammine said.

He also warned that rating agencies looked beyond the fiscal data. And, despite the reasonable fiscal outcome, “it is still far from certain that the credit rating on South African government bonds will not be revised downwards further in months to come”.

He highlighted the need to improve “the educational and skills outcomes of the economy to make labour more productive and as a result more employable”. He said this process would reduce tensions in labour relations, make companies more willing to employ people, accelerate the rollout of infrastructural projects and promote small businesses and entrepreneurship. - Business Report