Hilary Joffe Just as it does every April Fool's Day, the South African Revenue Service (SARS) managed to announce the outcome of its tax collecting efforts within 12 hours of the end of the fiscal year. This time, the bright yellow shirts officials sported at the news conference were defiantly cheerful. On the one hand, this was the first decline in annual revenue that anyone could remember. On the other, South African Revenue Service (SARS) managed, at the last minute, to bring in R8bn more than Finance Minister Pravin Gordhan had budgeted for in February. The figures tell an interesting story about SA's economy. They also raise questions about its fiscal policy. They tell just how bad was the effect of the recession on tax collection, and particularly on corporate tax. Total revenue of R598.5bn was R26bn down on the previous fiscal year - a decline of 4.4 percent. So revenue was hit much harder than was the economy itself. And, this was the first time in decades in which that happened - in previous recessions, tax revenue did not decline in nominal (money) terms even if it did in real (inflation adjusted) terms. And, not surprisingly given what happened to the commodities sector globally, it was resources and commodities, especially platinum and coal but also metals, that were hardest hit. Mining had been punching well above its weight during the boom, contributing about 13 percent of corporate taxes at peak: that halved in the latest year as tax from the mining industry dropped 55 percent. SARS itself digs deep into the figures to try to pick up patterns and improve its ability to predict the tax take. The shape of the economy, and of revenue collection, has changed so much over the past decade that historical models are not of much help. But that R8bn over collection tells a story of its own. For one thing, it shows that the "compliance dividend" that enabled SARS to collect more revenue by closing loopholes and enhancing its efficiency is not quite over yet. For another, it suggests that the economy was recovering quite nicely in the first quarter of this year, and that although some sectors were hit hard, the recession was not as savage as the treasury's pessimists had expected. Thus, the fiscal stimulus the government put into the economy did not turn out to be quite as strong as planned - arguably, because it did not need to be. The government's response to recession was never a "stimulus package" that committed it to more spending: rather, the government stuck to existing plans to invest in infrastructure and increase social grants and other social spending even though revenue fell off a cliff. All that government spending injected into the economy clearly did lessen the effect of recession last year. But it meant the fiscal bottom line moved from a surplus in 2007-08 to a 1 percent deficit in 2008-09 to a deficit for the latest year that Gordhan expected in February would come out at 7.3 percent of gross domestic product. Thanks to SARS' efforts, and to the economy, the final figure is actually 6.8 percent. So fiscal policy turned out to be a bit less expansionary than budget estimates. But there is reason to be cautious. Revenue is unpredictable. In the case of corporate tax, there is a lag of six months or more between the time income is earned and tax is paid. So the recession could still have a long tail. But the other reason for caution is that even at 6 percent, the fiscal deficit is a hefty one, and the public debt will ratchet up rapidly as the government borrows to finance its deficits in the next two to three years. So Gordhan will be keeping the pressure on SARS, and hoping that a healthier economy will yield more in the way of revenue - and need less in the way of fiscal stimulus. allAfrica.com (Business Daily)