Original report on state income slump notes monthly variations

In response to the rebuttal by the SA Revenue Service’s (Sars’) Dr Randall Carolissen of the Business Report article on the slump in state income in October and his insinuation that the analysis is attributed to myself, it is a pity Sars did not refer to my original report.

Far from suggesting that the reduction in government revenue growth in October would necessarily cause the fiscal deficit for the 2012/13 fiscal year to exceed the budgeted 4.8 percent of gross domestic product, all I alluded to was the fact that revenue growth had slumped in October and that if one were to simply extrapolate growth in government revenue and expenditure from the situation which prevailed at the seven-month stage of the fiscal year, to a full fiscal year, one would end up with a deficit higher than that budgeted.

In turn, this might be used by rating agencies to justify a negative outlook on government bonds. However, I specifically stated that “this does not represent a dramatic overshoot of the budget deficit. It amounts to no more than an overshoot of R11.7 billion in the public sector borrowing requirement compared with what is being budgeted for. The capital market, especially at a time of huge appetite for South African government bonds, could easily absorb such an increase in supply.”

In analysing the decline in government revenue in October, I specifically suggest that “we are hesitant to be unduly alarmist at this stage in interpreting the decline in growth of government revenue in October as representing a downward trend in revenue uptake just yet”. This is because I am aware of the factors that can interfere with specific monthly revenue data from time to time, which make it misleading to base too much on a single month’s data.

If the Business Report article failed to articulate this interpretation of my piece, I cannot carry responsibility for it.

I welcome Sars’ explanation for the sharp fall-off in growth in revenue from VAT and international trade, and its elucidation of the dangers of accepting monthly changes in government revenue as constituting a definite trend. However, as an analyst, it is my duty to interpret not only the data but the manner in which they might come to be interpreted.

In this regard, as a nation we cannot ignore the implicit warnings given by rating agencies regarding the potential for downgrading our credit ratings further. On the contrary, we would wish that by continuously reminding on the dangers implicit in such further downgrades, we might be doing the country a service by influencing the government into being more cognisant of its fiscal responsibilities.

As for my suggestion that the fuel levy declined on a year-on-year basis, I said no such thing. All I pointed out was that the growth in the fuel levy, as with other indirect taxes, had declined in October. In the case of the fuel levy, whilst its growth was very positive at 14.4 percent in October, this figure was down on the 18.5 percent growth rate recorded in September and the 15.1 percent growth of August.

Azar Jammine

Chief economist, Econometrix