South Africa is becoming vast welfare state, says finance minister

The maiden budget tabled by South Africa’s new Finance Minister Enoch Godongwana carefully balances his desire to stimulate economic growth and reduce borrowing with the need to assist welfare grants to the growing number of poor.

Johannesburg's central business district, the economic nerve center of South Africa's largest city. AFP PHOTO/MARCO LONGARI

Godongawana said that South Africa is fast becoming a welfare state, telling Parliament 46 percent of its citizens are receiving social grants.

He is able to show some generosity thanks to a 10.7 euro billion tax windfall due to a surge in commodity prices.

He stressed that this does not signify increased economic growth.

Principally, he will give 190 million euros to vulnerable households

Economic growth?

He has reduced corporate tax by one percent to 27 percent, limited personal tax increases to 4.5 percent to keep pace with inflation and raised the threshold at which South Africans under 65 will begin paying tax.

“This is not the time to reduce the post-Covid recovery,” he said. “So we have kept money in the people’s pockets.

Godongwana said he is not raising value added tax or increasing the fuel levy which has contributed to record hikes in petrol and diesel prices this past year.

He has also avoided increases in Third Party Insurance premiums to the Road Accident Fund.

Rises

His modest 'sin tax' increases of between 4.5 and 6 percent on tobacco and alcohol products will nevertheless vex the liquor industry reeling from the ban on sales imposed during the coronavirus lockdown.

South Africans will pay a health promotion levy in the shape of a tax on sugar and from next year, once legislation is in place, they will pay a carbon tax.

Godongwana has pledged to recuperate the estimated 20 million lost in excise revenue because of illegal cigarette sales during the lockdown.

Government borrowing has been capped for the first time in seven years and will be limited to R4.3 trillion which is 75.1 percent of GDP.

He expressed concern at having to bail out inefficient state-owned enterprises, mentioning specifically the 7.4 billion euros paid to the power Electricity Supply Commission.

Municipalities in arrears

He said 175 of the country’s 257 municipalities were seriously in arrears on water and electricity payments and urged ratepayers and residents to pay their bills.

Godongwana said the government would arrest the stratospheric public sector wage bill and deal with the endemic procurement corruption, money laundering and fraud undermining economic growth.

Opposition parties commended the balanced Budget and Godongwana’s determination not to accept a low growth trajectory.

The country predicts  real GDP growth next year at 2.3 percent with an average of 1.8 percent over the next three years.

Opposition financial commentators say the minister has not been bold enough laying out measures to curb youth unemployment which exceeds 50 percent.