Johannesburg - As South Africa faces huge socioeconomic problems, speculation that the country is likely to record a budget surplus in the new fiscal year has met with mixed reaction.
In his medium-term budget policy statement in October, finance minister Trevor Manuel said he expected a R9.3 billion budget surplus for 2007/08, an historic first for a South African budget.
Manuel will deliver his budget speech on February 21.
At the time of the medium-term statement, Manuel said robust economic conditions had resulted in higher-than-forecast revenue collections in the current fiscal year and a continued decline in debt service costs. He said the fiscal balance would go from a deficit of 0.4 percent of gross domestic product (GDP) in the current fiscal year to a surplus of 0.5 percent in 2007/08.
The latest estimates represent a significant improvement on those made in the last annual budget, when Manuel projected a deficit of 1.4 percent of GDP for the next fiscal year and 1.2 percent thereafter.
He announced that government revenue flows would be R20 billion higher in the current year than the original budget projection, while expenditure would be only R1 billion higher.
This will help moderate inflation. A surplus effectively sterilises money in the economy, countering the rapidly expanding money supply. And a dramatically lower borrowing requirement takes the pressure off long-term interest rates.
But economists are debating whether a budget surplus is advisable in a developing country such as South Africa, given its huge socioeconomic challenges.
Pan African Investment and Research Services economist Iraj Abedian said it was questionable from an ethical point of view. "The important point is that the budget surplus is not by design but by default, because government does not have the capacity to plan and implement spending," he said.
"The economy is growing and generating state revenue; hence we end up with a budget surplus."
He said attention should focus on inadequate capacity within the state machinery. "Why should provinces and national departments be allowed to send back allocated money?"
Abedian said that from a political perspective, the government should invest in its capacity. "The challenge remains: you can allocate money, but can you spend it?"
Dennis Dykes, Nedbank's chief economist, said the budget surplus would be a result of underestimation and better collection of revenue. "It seems as if government has taken a decision to move into a surplus because the country is experiencing an upswing."
Dykes argued that the reason for delivery failure was not a lack of money but a lack of efficiency and capacity. "Manuel has told all departments and provincial governments to demonstrate that they can spend the money instead of putting it in the bank account."
Dawie Roodt, the chief economist at Efficient Group, said the primary reason for a possible budget surplus was a huge increase of the tax burden. "The surplus is obviously good news: the state will borrow less and have money available for other things. But the bad news is that a surplus is as a result of an increase in tax burden, which is really bad."
He said Manuel should reduce the tax burden on the productive side of the economy, meaning corporate tax.
"Although South Africa is still faced with socioeconomic challenges, we should not increase social expenditure because we have done so substantially over the years."