Johannesburg - The new format for the government’s consolidated accounts had improved transparency and accountability, Matthew Simmonds, the deputy director-general at the Treasury, said yesterday. It shows clearly how much of the the government’s budget goes to operating expenditure and how much is on capital projects, which eventually pay their own way.
“The current balance shows the surplus or deficit in the financing of government’s operating activities. A deficit indicates a need to borrow to run operations, while a surplus indicates the availability of current revenue to finance investment,” he said.
He noted that in the 2012/13 and 2013/14 fiscal years, the government ran a deficit on its operating account.
In other words, South Africa had to borrow to finance the government’s day-to-day expenditure – a practice that is unsustainable because of the mounting interest bill. This imbalance would be masked by the previous format.
Simmonds said the change was in line with International Monetary Fund guidelines and international best practice.
Simmonds added: “And we believe it enhances accountability and transparency, as well as presenting a more analytically interesting account of the fiscal framework.”
The reason for the smaller deficit is that the new format includes “extraordinary receipts and payments”, according to an explanatory note from the Treasury. Because receipts are projected at R11.4 billion in the 2013/14 fiscal year and payments at only R200 million, the inclusion of these items in the accounts substantially improves the bottom line. These items were previously added to the budget deficit to arrive at the net borrowing requirement.
Extraordinary receipts include premiums on bond issues.
Bonds are issued at a premium and the profit received is recorded as revenue from a financial asset. It also covers profits on the conversion of foreign currency transactions.
Extraordinary payments include losses on the gold and foreign exchange reserve account; premiums on debt portfolio restructuring and losses on conversion of foreign currency transactions.
Simmonds noted the change was announced in last year’s February Budget and details were repeated in the medium-term budget in October last year. He said that in the February Budget the Treasury had said that the new format would be used as from this month.
Technical improvement were made “from time to time” in presenting government’s fiscal accounts, Simmonds said. The previous change was when the Treasury switched from focussing on the main budget to the consolidated budget which takes account of spending by provinces, social security funds and public entities financed from their own revenue. - Business Report