Welfare system warning for South Africa

South Africa’s Finance Minister Enoch Godongwana has warned that any plans to introduce a universal basic income grant could result in existing welfare services no longer being available.

Speaking with the Business Times, Godongwana explained that South Africans are already receiving many services for free, and it would be sub-optimal to add a basic income grant on top of these offerings.

“How many free things is this government providing to the poor? Shouldn’t the debate be on a restructuring of the grant system?” he asked.

“We are giving free basic services, free water, electricity, free housing, free child support grant … We are providing expanded public works. This year we introduced a public employment programme, spending around R11bn.”

“So, isn’t it time to look at the entire grant system and say, optimally, what is the best grant system for the country? If people are saying let’s put a basic income grant, then we can’t have all of the other things,” said Godongwana.

These statements follow reports of political pressure within the ANC for the R350 social relief of distress (SRD) grant, implemented following the national lockdown, to be made permanent.

The SRD grant expires in March 2022, and no provision has yet been made for its extension.

Godongwana’s statements also follow the presentation of his first-ever medium-term budget policy statement on 11 November.

The finances he reported were better than expected, but this was positioned against the fact that there is little room to manoeuvre within the country’s existing budget.

South Africa’s budget windfall was also primarily due to higher commodity prices, which are not expected to remain at their current levels.

“The South African economy grew faster than expected in the first half of 2021, but this momentum is expected to wane following public violence in July, port and rail disruptions, and the third wave of Covid-19 infections,” added Godongwana.

He highlighted several other key worries, including:

• Household consumption has not yet recovered from the pandemic.
• Gross fixed-capital investment remains significantly below pre-pandemic levels.
• Unemployment is at 34.4%, meaning the labour market is weak.

Godongwana notably committed to restraining spending to avoid a widening of the national budget deficit.

“Changes to spending will be funded through improved revenue performance or through reprioritisation and reviewing existing programmes,” he said.

Godongwana also highlighted the major issues South Africa faces regarding tax.

The country owes about R4 trillion in debt, while debt-service costs are estimated to be R1 trillion.

“The R4 trillion in debt that we now owe is incurring debt service costs that will become the largest portion of spending, compared to individual functions, from next year,” he added.

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