It seems as if no one believes that there is any bad news anymore. I do not agree. Yesterday the National Treasury published the June exchequer accounts and the two crucial figures are accelerating away from each other at an ever escalating and hugely alarming rate. Government expenditure is now increasing by around 20% pa while government revenue is growing at well below 8% pa. In the second quarter of the year the state spent R184 billion on, amongst other things, ensuring that ministers made full use of their car allowances. This is R40bn more than was spent by the bureaucrats a year ago. Now add to this the fact that revenue for the same period was a mere R120bn (compared to R136bn last year) and you have the makings of what Mr Charles Dickens described as “misery”.
On a rolling twelve months basis the deficit is a staggering R83bn. A simple, but hopefully, unduly bearish extrapolation of the trends suggests that the annual deficit might be R140bn or almost 7% of GDP. Not only is it clear that the new minister of finance is going to have to put on his big borrowing boots but also that the tax payers are in a very bad way, while the tax eaters are off and flying.
The government is obviously very determined to keep the economy afloat by taking over the job of spending money from the embattled, impoverished and increasingly unemployed citizens. Without a very sharp change to these trends, by year end the state will comprise nearly one third of the South African economy. Capitalism under caution?
The markets, however, are not at all worried. Most commentators are confident that the present bad news was what the smart and prescient investors were already discounting during the March crash. Now the worst is over they say, the worrying can end and it is time to be fully invested.
Money continues to flow in to the country and the rand has had another excellent week. So too, by the way, has the Aussie dollar, so perhaps it is a commodity thing. Long bond yields held reasonably steady and the JSE of course kept on surging. But several heavyweight companies either reported or issued trading statements this week and not one was optimistic. The once mighty Anglo American completed a very poor year by failing to pay any dividends at all. I was pleased to note that inflation is falling quite sharply as this means that savers reluctant to leap into shares can find some modestly positive real interest rates.
Away from the markets, we were treated to the uniquely South African sight of angry protestors singing and dancing while empting rubbish bins all over the streets. This latter action has the satisfying benefit of irritating and alienating the initially sympathetic but powerless ratepayers who will ultimately bear the costs of it all. It also ensures that there will be plenty of overtime for picking it all up again later. I have been mulling over the idea that every parastatal organisation should publish their total wage and salary bill as well as their head count. I think that a simple average per capita emolument number might be very interesting for everyone. To really spice things up how about including the costs of consultants but excluding their number from the staff lists! I have my doubts about the popular belief that public servants need salaries high enough to prevent them defecting to the private sector. Business will poach anyone who will generate more wealth than their salary.
There’s a huge dilemma here in the kingdom this weekend. The sardines have put in a very belated appearance and so the men in shorts are torn between watching the rugby or hunting fish. It’s a tough decision.
James Greener
31st July 2009.
