Karima Brown, Amy Musgrave and Mariam Isa
4 September 2008
Johannesburg — IT SEEMS increasingly likely that the government's much- vaunted budget surplus will not be available to its successors next year, with much of the funds already committed to rescuing Eskom and paying higher wages to public sector workers.
Congress of South African Trade Unions (Cosatu) leaders told Business Day yesterday they had been told informally that the forecast 2009-10 budget surplus of R11,3bn had been severely diminished. The topic was discussed at Cosatu's three-day central executive meeting, which ends today.
The treasury declined to comment, saying the "fiscal framework" would be updated by its medium-term budget policy statement on October 21.
The surprise development will hobble the new government, probably led by Jacob Zuma, in delivering on pledges of far-reaching measures to alleviate poverty and create jobs.
It may also spook financial markets, weighing on government bonds and the rand, already unsettled by the huge deficit on the current account, the broadest measure of trade.
Finance MECs have been ordered not to reveal the contents of a budget council lekgotla last month, where Finance Minister Trevor Manuel reportedly warned them not to come cap in hand looking for extra funds, as there were not any . "We have been sworn to secrecy. I really cannot comment on this matter," one MEC said.
Next year's forecast budget surplus, put at 0,6% of gross domestic product (GDP), has now been allocated to Eskom's recapitalisation and higher wage bills to compensate for soaring inflation.
The African National Congress (ANC) and its Cosatu and South African Communist Party (SACP) allies have not been informed formally about the erosion of the budget surplus, already a controversial issue for the alliance.
Cosatu had argued that the surplus - recorded for the first time in fiscal 2006-07 - should be spent to ease the hardships of the poor.
The treasury has said the surplus is cyclical, which means it stems from revenues generated by faster economic growth, rising commodity prices and a favourable global environment.
This means the extra money should not be spent on policies that cannot be sustained when the tide turns.
Officials said last year that if temporary tax revenues were excluded the budget would show an average deficit of 0,6% of GDP over the next few years.
Some members of the ANC's tripartite alliance believe the government scrapped the surplus to frustrate the efforts of the incoming administration.
But Cosatu spokesman Patrick Craven said yesterday that if the money was spent on Eskom's recapitalisation and public service pay, the federation would not take issue.
ANC secretary-general Gwede Mantashe also said "it would not be a train smash" if the bulk of the surplus went to Eskom.
The government will lend the power utility R60bn over three years to help fund its badly needed expansion programme, with half of that amount allocated for next year alone.
SACP general secretary Blade Nzimande said that while his party did not object to pumping state funds into Eskom he took issue with lack of consultation on the surplus.
"If this is true, there should have been consultation on how the surplus should have been used. We don't need a piecemeal strategy. We need a comprehensive strategy," he said.
Local bond markets may take fright if the forecast surplus gives way to a deficit as this means the government would have to borrow more, boosting supply.
But a smaller surplus, or even a balanced budget, is unlikely to be taken badly.
Another critical issue is how money is spent amid investor concern that a more left-leaning government would pump cash into unsustainable social welfare policies.
"I think we are going to spend more, but if it delivers economic growth it's more palatable," said Brait economist Colen Garrow. "If we started spending to the extent of a large fiscal deficit that would be concerning."
Garrow said markets would be sensitive to hints that surpluses would disappear. "Markets have been told that over the following three years we are likely to have budget surpluses. If there are none it will be a shock," he said.
Lined up with the current account deficit - which hit a 26-year peak at 9% of GDP early this year - a shrinking fiscal surplus would be likely to weigh on the rand, he said.
News of the disappearing surplus is likely to spark renewed anger and suspicion among the alliance partners.
"The money is already locked into a particular trajectory. Anything we want to do about the Polokwane resolutions will now be severely hampered," an alliance leader said.
Alliance leaders were told they would have only an additional R6bn-R7bn to spend on developmental programmes, including more free schools, health and speeding up land reform.
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It seems that whenever money "disapears",JZ can't be to far away.