/ 19 March 2007

The real budget surplus

Everybody knows that Trevor Manuel is sitting on a pile of money. As he told us in his recent budget speech, he is expecting that pile to be worth R11-billion this year.

But this is only the budgeted surplus for government departments. If government’s wider interests are added ­– including, among others, social security funds — the budgeted surplus for the year increases by more than 50% to R17-billion. Add on state-owned enterprises such as the Lotto Board, and the number tends to grow.

The main budget for the past year (2006/07) is expected to post a R5,2-billion surplus. But the consolidated budget shows a R10,3-billion saving.

Not included in this figure, or the surplus on the main budget, are the following estimates of savings in public enterprises in 2006/07:

  • l Airports Company of South Africa (Acsa): R516-million;
  • l The Water Boards: R960-million;
  • l National Health Laboratory Service: R200,7-million;
  • l The Performing Arts Council: R2,2-million;
  • l The Financial Services Board: R15,2-million;
  • l South African National Parks Board: R44,9-million;
  • l Council for Scientific and Industrial Research: R22,6-million;
  • l The National Lotteries Board: R58,6-million; and
  • R58,6-million; and
  • l The Setas are required to hold four months of their levies in reserves. In 2005/06, they collectively held R1,2-billion. They received a total levy income of R4-billion and are expected to receive R4,2-billion for 2006/07, which means that they are required to save more than R1-billion in reserves again.

The R11-billion budget surplus, announced by Manuel last month for the upcoming financial year, is only a partial reflection of the government’s book-balancing act.

The treasury derives this figure by narrowing its lens on how the government spends the national revenue fund, terming it the “main budget”. If you widen the lens to include the social security funds and the Reconstruction and Development Programme, the budget surplus grows by more than 50% to R17-billion. Treasury calls this the “consolidated national budget”.

Zoom out even further to include a third tier of government spending — provincial and local government accounts plus extra-budgetary institutions — and you arrive at the “consolidated general government budget”.

Extra-budgetary institutions include universities, technikons and chapter nine institutions like the Human Rights Commission. Comparing the consolidated general government budget and the main budget shows that the bulk of government revenue is captured in the main budget.

The most recent breakdown in the 2007 Budget Review shows that total receipts for consolidated government were R534,5-billion and R413,4-billion on the main budget for 2005/06.

Total spending on the main budget in that year was R418-billion and R537-billion on the consolidated government budget. Yet even this broader take on the government’s spending is incomplete.

The treasury has been increasing the number of government entities over the year in its “consolidated government budget”, but it still only counts 52% of all entities. The entities that are included, such as the Unemployment Insurance Fund (UIF), tend to make use of tax revenue.

Treasury says that these entities account for 86% of all government resources controlled by public entities.

To fully capture government spending in the economy, treasury argues it will have to develop a new lens — one that captures the accounts of all government business enterprises. This will allow it to publish a budget for the “consolidated public sector account”.

The accounts of non-financial public enterprises, such as Transnet and Eskom, are described in the public sector borrowing requirement.

Non-financial enterprises are expected to contribute almost R8-billion to government savings for 2006/07, but in future years will finance their capital programmes through increased borrowing.

The dividends that the government receives from public enterprises are recorded as extraordinary receipts. The government received R1,7-billion in special dividends in 2005/06 and is expected to receive R1,5-billion in 2006/07.

This latter figure comprises R828-million from Telkom and R668-million from Acsa.

Treasury spokesperson Thoraya Pandy said that the financial public institutions, such as Khula Enterprise Finance, are not included anywhere in consolidated government spending.

Including two of the major finance institutions, the Development Bank of South Africa (DBSA) and the Industrial Development Corporation (IDC), might add R1,7-billion to the balance for 2005/06. The DBSA posted a R930-million surplus in that financial year and the IDC a profit of R750-million.

In the recent past, the consolidated national budget has run a surplus even when the main budget was running a deficit.

In 2005/06, the main budget ran a deficit of R5-billion, while the consolidated budget reflected a surplus of nearly R3-million. In the past financial year, the surplus on the consolidated budget of R10,4-billion was twice that of the main budget.

This trend is likely to continue according to the 2007 budget, which projects that the budget balance on the consolidated national budget will exceed the main budget balance over the next three years.

The balance on the consolidated budget is higher than the main budget because of surpluses in the social security funds. These funds comprise the UIF, the Compensation Fund and the Road Accident Fund (RAF).

The budget balance for all these funds has grown from R3,5-billion four years ago to R7,5-billion in 2005/06.

In 2006/07, the total surplus dipped to R4,9-billion as the RAF posted a deficit. The treasury expects that the fund will balance its books in three years.

The consolidated general government expenditure includes the provincial and local government accounts.

In 2005/06, about one-third of the government’s consolidated spending took place at provincial level and one-fifth at local government level. In 2004/05, the consolidated provincial spending showed a R2,1-billion surplus. However, the following year this declined to a R23-million deficit.

Additionally, the consolidated budget includes more than 28 public entities. Some of these have substantial surpluses, while others run deficits. The distribution agency for the national lottery, for example, posted a R538-million surplus in 2005/06.