Ideas Matter | Godongwana’s priorities must include dealing with welfare programmes

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Enoch Godongwana, the new minister of finance. Photo: Jabu Kumalo
Enoch Godongwana, the new minister of finance. Photo: Jabu Kumalo

IDEAS MATTER


Aside from the major shake-up of the security cluster, the most significant other change announced as part of President Cyril Ramaphosa’s Cabinet reshuffle last week was that Enoch Godongwana will take over as minister of finance.

Given the country’s current economic woes, and the perilous state of government’s finances, perhaps it would be better to offer commiserations, rather than congratulations, to Godongwana.

READ: Mixed reactions following Godongwana's appointment as finance minister

At this time, after years of increased government interventions and control of the economy – and more forms of (higher) taxes – the country has an unemployment rate of more than 42%. Might this not be the point in time that government realises it cannot redistribute citizens into prosperity?

South Africa needs new ideas, but those must also be the right ideas. Social welfare programmes, while necessary in narrowly defined and measured contexts, cannot be the answer to the current economic malaise. In many significant ways, the deck is stacked against a prosperous future for the country, but people such as Godongwana have the power to change that.

READ: Ideas Matter | The only way out of the violence and looting that devastated SA is economic freedom

The priorities, as I see it, for the new finance minister should be:

  • Hold the line on public sector wage increases;
  • Continue to stabilise and lower government’s debt-to-GDP ratio;
  • Hold state-owned enterprises accountable by not acceding to their bailout requests when these arise;
  • Endorse legislation that aims to foster fiscal responsibility from national to municipal level;
  • Bring renewed impetus for provincial and municipal governments to focus on using their limited resources to improve service delivery, especially in poorer and rural areas; and
  • Place pressure on his colleagues to abandon policies that will dissuade investment, such as land expropriation without compensation and the National Health Insurance system.

Forced welfare is immoral

It is vital for the country’s future investment appeal that the minister resist calls for the introduction of a basic income grant. An income grant will not address the structural, government-imposed barriers to business formation and job creation, and will only force more citizens into dependence on the state. South Africa needs to right the fiscal ship and make its foreign investment case stronger through incremental steps. Being responsible and refusing to implement more welfare programmes (further expanding state spending and suffocating the private sector) will send precisely the right signal to the world.

READ: Economic outlook for the year ahead: growth likely to be subdued compared to first quarter

South Africa’s general trajectory of more people becoming dependent on welfare programmes is not sustainable. Forcing people to live on welfare because of red tape and other government-created barriers that prevent employment is simply immoral.

Indeed, the number of social grant recipients increased to 18.3 million (31% of the population) last year from 3 million (7%) in 1997, and this jump happened mainly from 2002 to 2010. Further, economist Mike Schussler has pointed out that “South Africans are now in the poorest 40% of the world population. By 2040, we may be in the poorest 20%.”

While we cannot discount the effects of the 2008 global financial crisis and the Covid-19 pandemic, the consistent decline of the number of South Africans in the middle class, and the destruction of wealth, are mostly the results of destructive government policies. More government spending and control will not lead to increased wealth creation.

Source: Economists.co.za and the World Bank

To have a robust welfare system in place, within the context of sustained, real growth, is one thing, however, in the current low-growth South African environment, focusing a lot of policy-reform capital on the introduction of an income grant distracts from the more meaningful (though undoubtedly more difficult) reforms that should be implemented. A redistributionist and paternalistic government mind-set will not do much to alleviate the problems of widespread poverty and fixed inequality.

READ: Ramaphosa’s R350 grant not enough – economic justice group

If government can manage to attain a robust, longer-term budget surplus, it can better assist those citizens who need it the most. But to get there, Godongwana and others will need to resist the temptation for grand government projects and redistributionist policies – these will not result in real, transformative economic growth.

Real growth lies with the market, the market being ordinary South Africans in the private sector.

It would be difficult to convince those around him of this, but if the minister was to advocate reduced taxes or, at the very least, tax exemptions for small to medium-sized enterprises, he would give the country a massive push in the right direction. High taxes do not correlate to high tax revenue collection. Further to this, given all the corruption that has been exposed in recent years, many South Africans feel that their taxes are ultimately wasted. The more we tax people who want to engage in entrepreneurial and business activity, the more they are discouraged from undertaking new ventures in the first place – and all the concomitant job creation opportunities fall away.

READ: South Africa needs to revisit the emergence of black conservatism

It may sound trite after so many years and opportunities, but South Africa still has the potential for great development and progress. However, every time the wrong idea or policy is chosen, we head further in the wrong direction, and it becomes ever more difficult to set the country on a better path.

Godongwana and those around him in Cabinet need only look at those countries around the world where people’s quality of life has generally improved: they have leaned more towards economic freedom – allowing firms and entrepreneurs to go about their business without many government burdens to comply with – than away from it.

South Africa does not need to reinvent the wheel, but rather we need to start pursuing policies that allow job creation and wealth independence.

Hattingh is deputy director at the Free Market Foundation. The views expressed in the article are the author’s and not necessarily shared by the members of the foundation


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