'State finances improving'

Johannesburg - The budget numbers for February released on Tuesday by the National Treasury came as something of a surprise for the market.

According to André Roux, head of fixed income at Investec Asset management, the market had expected a deficit of about R14bn, in line with the revised budget estimates announced during Finance Minister Pravin Gordhan's recent budget, after adjusting for the typical February seasonal pattern.

The actual number, however, came in at a surplus of about R3bn, around R17bn better than expected.

Said Roux: "At least half of this arose from better than expected revenue numbers. Each of the three main taxes (personal income tax, VAT and company tax) was some R3bn above expectations.

"If this trend is confirmed in the March numbers, the revenue side of the budget might end the year R10bn to R15bn better than the minister thought was possible as recently as a month ago. This improved outcome bodes well for revenue in the current financial year and suggests that revenue might exceed the budget substantially."

According to Roux, the expenditure side of the budget was also significantly better than expected.

"This may not herald a new trend of lower government expenditure, but it certainly suggests that minister Gordhan is keeping departments to their budgets.

"The market can now be confident that the actual expenditure will come in below or at worst will not exceed the revised expenditure budget," he said.

In summary, Tuesday's number suggests that the final deficit for the previous financial year will be R10bn or so better than the revised number, Roux added.

"This means that the minister will start the new financial year with some cash in reserve. In addition, it suggests that in the current financial year government will return to the practice established by the previous minister of finance when in most years the budget outcome was substantially better than appeared possible at the time the budget was drawn up."

- I-Net Bridge