With hardly a moment to take a breath after the election we are on to the next big thing: the medium-term budget policy statement will be tabled on Thursday. And while the fiscal picture has improved a lot since February, the decisions to be made about spending choices are no easier.
The political pressure on the Treasury is immense. Yet the harder the decisions the less likely they are to be made now. Partly this is because there has not been enough time for the Treasury to process them given the pace at which things have been moving, but also because the biggest one of all — whether to provide permanent income support to the destitute — is laden with risk and is difficult.
The lobbying from the long-time left champions for a basic income grant (BIG) has been intense and hugely successful. The ANC decided at its July lekgotla that it supports a permanent grant “subject to long-term affordability”. During the past six months a lot of detailed research has been done on behalf of the government to explore the costs, risks and benefits.
One panel, commissioned by the department of social development and led by Wits professor Alex van den Heever, explored options from the extension of the monthly R350 grant to larger grants in line with the food poverty line (R624) and the upper bound poverty line (R1,335), to a fully fledged universal BIG. Their modelling takes account of the risks to the fiscus from escalating costs against the potential economic multipliers for tax revenue and economic growth that come from putting money in people’s hands.
A second piece of work, undertaken for the National Treasury by the University of Cape Town’s SA Labour & Development Research Unit explored the effectiveness of different types of grants, particularly whether the R350 or a targeted family grant along the lines of Brazil’s bolsa familia would be more effective, both in terms of cost and relieving poverty.
Both papers are to be published soon, the second by the UN-Wider and Treasury collaboration and the first, at the end of November, after the final version goes to the department of social development. At the risk of grossly simplifying their work, the former is tending towards an outcome in which the principle of a permanent grant is endorsed due to its social benefits, but due to the risk the level is set very low. The qualifier is that a low-level grant will neither “solve” poverty nor have significant multiplier effects.
The second found the family grant to be more targeted and affordable than a R350 grant for individuals, but carries the qualifier of it being difficult to implement. The risks of corruption are high and the selection of households and households’ heads will be complicated.
Critical to bear in mind are the costs. The R350 grant would cost at least R40bn a year, with the potential for that to rise to R70bn depending on the uptake. This would require a dedicated revenue stream to be introduced into the fiscal framework. As a 1% increase in personal income tax raises R10bn and a 1% increase in VAT about R20bn, tax increases would have to be substantial.
A grant is not the only difficult question. The spending cuts made in the February budget were brutal, and that pain has not yet been fully felt. The framework assumes no real increase to other social grants for the next two years. It also slashed R286bn off the education budget over this and the next two years, and R86bn off the health budget.
Cuts of this magnitude are going to be difficult to bear. It prompted the department of education in KwaZulu-Natal to announce that it would cut 6,000 posts, 2,000 of them for teachers — though after an outcry from unions the province seems to have backtracked. The cuts also imply 15,000 to 20,000 fewer police over the next couple of years.
Fortunately Enoch Godongwana, who presents his first budget on Thursday, can leave the grant question for February as the R350 has already been extended to the end of March. We have not heard much from Godongwana due to the proximity of his appointment to the budget. But it helps to be mindful of the one occasion on which he has spoken his mind, at the Sunday Times Investment Conference last month.
There, he said, quite simply, that his overriding concern was to make SA a better place to do business. We can expect this to be a focus of Thursday’s adjustment budget. But while he can skip over the big questions for now, they will loom even larger in February.
• Paton is editor at large.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.