Following the end of the Fifa 2010 World Cup in July, growth in government revenue declined significantly in August to 19.3% year-on-year from 23.4% in the previous month.

Government revenue had been boosted by stronger domestic consumption during June and July, which contributed to a significant rise in taxes on goods and services. Subsequently, taxes on goods and services declined from R22.1-billion in July to a more sustainable R19.6-billion in August.

Despite this decline, analysts are encouraged by the significant double-digit growth in government revenues, pointing to a considerable recovery in domestic economic activity.

Even more encouraging is the improvement in company tax revenues to an impressive R10.6-billion in August. Although partly reflecting a lagged effect from Fifa World Cup buoyancy, the rise also marks the first notable annual improvement in company tax revenue collections since the beginning of the current fiscal year.

In contrast, growth in government expenditure increased in August to 17.9% from 12.5% in July. Despite contributing to a rise in the month's deficit to R9.4-billion from R8.6-billion in July, government expenditure has remained well within the budget's limitations, having exhausted only 39.8% of the National Budget provisions in five out of the 12 months of the fiscal year on a year to date basis.

The budget deficit increased further in August to R78.1-billion in the month, from R68.7-billion in July.

Nevertheless, financing of the deficit has remained considerably prudent, with provision for foreign loans still remaining untapped as revenues show ongoing improvement.

While analysts are reassured by the risk averse attitude towards government financing, they are concerned by the continued weakness in fixed capital formation at the government level, which had provided some hope for construction activity at the announcement of the 2010/11 National Budget.

Growth in fixed capital formation by government declined by a further 8.0% in Q2 2010, following a 7.8% contraction in Q1 2010.

Although partly reflecting a downward distortion as a result of high fixed investment during 2009 in anticipation of the Fifa World Cup, the weak growth in capital formation provides no support for an economy which is struggling to reabsorb labour numbers post the recovery from the global recession.