How to mini-budget like a boss

I’ve always wondered about the differences between government finances and company finances. The most obvious is that the tradition of governments all over the world is to present their budgets — what they plan to spend over the next year — as the main financial presentation of the year. Companies seldom do that publicly: they report on the outcome. Hence, government finances tend to be prospective, and corporate finances retrospective.

This very essential difference is obviously a consequence of their respective audiences: investors want to know how the company performed; voters want to know what the government is offering. Part of the difference lies in the fact that for investors, the most important things are the value of their investment and the likelihood of dividends or share buybacks.

With governments, the one thing voters very seldom get is a tax refund. Once you hand your boodle over to the government, then it’s, generally speaking, goodbye. The government might promise to take less next year, but as for this year’s rake, you can forget it. And the reason is mostly that governments around the world spend more than they bring in. And this is true even in the good years.

There are other differences too, of course. Government finances are, generally speaking, much bigger. And with that size difference come advantages and disadvantages. The disadvantages are that as finance minister you are steering a huge tanker. Turning is a hard and long-term project. The advantage of titanic size is that there is a kind of “much of a muchness” about government budgets. A little more here, and a little less there. It all kinda blurs.

Government finances are also pretty rigid. If you have told the public you are going to spend R50-billion on education in a fiscal year, you can’t just spend half of that. But I bet some corporates change course massively, financially speaking, at various points during the year. After all, management teams are paid to do so if the outlook or circumstances change.

I wonder sometimes what would happen if governments approached their finances as if they were corporations, and corporations published their specific spending and income projections for the year. I think it might help both to consider this speculative possibility. Some companies do provide market guidance, but most keep it close to their chests because it’s embarrassing when you miss your targets and active shareholders are lurking to make a fuss.

Governments have long ago gotten used to that little problem. Oddly for me, it’s much easier to understand the strategy of a company by seeing what actually happened the previous year compared with understanding government strategy by seeing what they hope will happen in the future. It’s just much more concrete, grounded as it is in reality.

All this brings me to Wednesday’s mini budget or, as it’s more formally known, the Medium-Term Budget Policy Statement. In a way, the mini budget is an interesting beast because it happens halfway between when the Budget was produced and when the final spending history is known.

I always find the way the National Treasury expresses itself very refreshing: there is an honesty and grittiness about the department that is evidenced in no other department. But that doesn’t mean the Treasury has been free of mistakes.

Over the Zuma years, its biggest mistake was to constantly overestimate economic growth. Even when those estimates were brought down, they were still missed on the downside. The Treasury just didn’t recognise how business confidence was eroding.