BUDGET | Godongwana not keen on basic income grant, prefers job creation through growth instead

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Unemployment is at a record high.
Unemployment is at a record high.
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  • Finance Minister Enoch Godongwana walked back any expectations that government is on the verge of announcing a basic income grant.
  • In his medium-term budget speech, he stressed that South Africa is already spending more than R1 trillion on social grants.
  • Any additional grants must first "meet the test of sustainability and effectiveness by being fully and appropriately financed to ensure that the fiscal balance does not deteriorate".

In his first medium-term budget speech, Minister of Finance Enoch Godongwana did not give any indication that he is keen to embrace a basic income grant, stressing that South Africa is already spending R1.1 trillion on grants, while struggling with snowballing government debt of R4 trillion.

But he added that a decision about government's interventions to expand the "social security net" would be provided in the February 2022 Budget. The decision on the BIG will be made by Cabinet.

Godongwana said proposals to expand social grant support should be evaluated against pre-existing priorities of government that remain unfunded, including basic services, education, and healthcare.

He stressed the bleak state of the fiscus, with government debt repayments expected to rise from R269.2 billion in 2021/22 to R365.8 billion in 2024/25. This is larger than the health and police service budgets.

Godongwana said that while the Covid-19 pandemic increased the national debate on the possibility of a universal basic income grant, any social protection programme should complement a "vibrant job-creating economy".

"In the absence of faster job-creating growth, it is essential to maintain social protection in a sustainable way. Any proposals to expand this system should meet the test of sustainability and effectiveness by being fully and appropriately financed to ensure that the fiscal balance does not deteriorate," read the medium-term budget policy statement (MTBPS), which was released in a joint sitting of Parliament.

"Given the weakened public finances, new spending commitments can only be funded by closing existing programmes to free up revenue or through permanent increases in revenue collection. New tax proposals must also be assessed against their revenue-raising potential and wider effects on the economic activity and growth," the medium-term budget said.

Government has confirmed that it is considering a comprehensive basic income grant (BIG) following the blow that the Covid-19 pandemic has dealt on South Africans' livelihoods. Some commentators have insisted that large tax hikes would be required to fund it.

The current social relief of distress grant (SRD) is coming to an end in March next year, and has so far been paid to 9.5 million South Africans. The grant brought the total number of welfare grant recipients to 27.8 million – or 46% of the population. Government is now spending R1.1 trillion a year on grants.

"At the same time, the number of people working has declined, further underlining the critical flaws in our economy," Godongwana said in his speech. He said that the only "permanent solution" to South Africa’s unemployment and poverty challenges are "high and sustained levels of economic growth".

"South Africa spends a higher percentage of GDP on cash grants than the vast majority of developing countries and the social protection system accounts for 13.9% of consolidated non-interest spending in 2021-22," Godongwana said in the MTBPS. 

The MTBPS said social grant-based relief of distress will amount to R28.3 billion in the 2021-22 financial year.

"To continue mitigating food insecurity and poverty in the 2021-22 financial year, an additional R26.7 billion is allocated to the Department of Social Development to reinstate and administer the special Covid-19 social relief of distress grant for eight months from August 2021 to March 2022," the statement said.

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