Finance Minister Enoch Godongwana has called for a restructuring of the social grant system and has cautioned that some of the welfare and other services the government provides for free to the poor could be scrapped should SA opt to introduce a universal basic income grant.
“How many free things is this government providing to the poor? Shouldn’t the debate be on a restructuring of the grant system? 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,” he told the Business Times in an interview at his Cape Town office on Friday.
“We’ve got to say, which of these are critical? If I’m providing a basic income grant, is there need for a child support?”
There is increasing political pressure on the government to fund a basic income grant (BIG) to support vulnerable citizens outside the welfare net.
If people are saying let’s put a basic income grant, then we can’t have all of the other things
— Finance minister Enoch Godongwana
The R350 social relief of distress grant (SRD) introduced at earlier stages of the lockdown expires in March and the Treasury has not made provision for its continuation beyond that date.
Godongwana insisted on Thursday that the decision to continue the SRD was the cabinet’s, not his. But there is a push by some in the ANC for a political decision to be made on some form of a more permanent grant for those outside the social safety net.
Gondongwana — who chairs the ANC national executive committee subcommittee on economic transformation — said while there had been discussions at party and government level on this issue, no decision had been taken.
Three months into the job, the new finance minister delivered a budget that stressed the need for fiscal consolidation through a reduction in spending, trimming the budget deficit, stabilising debt at 78.1% of GDP and accelerating structural reforms to speed up economic growth.
In the interview, he railed against those who criticised the midterm budget as imposing austerity, saying he would never commit the country to taking up more debt and spending recklessly, as the cost of servicing that debt was astronomical.
He said unlike economies that grow at a higher rate and can afford to increase their budget deficits and borrow more, SA has no appetite for more debt if it is to avoid the fate of Greece or Argentina, whose economies faltered as a result of the global financial crisis.
“The capacity of the economy to service the debt is the critical factor. If you were to pose a question, ‘Is the South African economy in a position to service that debt?’ the answer is no. If you look at the interest we are paying on our borrowing cost, it’s higher than the growth of the economy. People are comparing us with economies whose growth is higher than their interest payments. People tend not to compare apples with apples.
“We cannot at this stage, without growing the economy, think we can afford everything.”
With debt service costs topping R300bn next year as bondholders price in the risk of SA's borrowing, he said there could never be a reasonable argument for spending more money by paying interest on debt than we do on policing and healthcare.
“Next year, debt service costs will be about R303bn. That single component is bigger than home affairs, police, defence combined.”
Godongwana said fiscal consolidation was responsible as loosening up would trigger a rise in inflation — which would hurt the poor in the end. “If we become loose on the fiscal side, monetary authorities are not going to respond kindly to that, they will hike interest rates. In South Africa we have an independent Reserve Bank, I can’t go and instruct them and say this is what you’ve got to do. Economic indicators suggest that inflation is going to grow and price stability will be threatened.”
Next year, debt service costs will be about R303bn. That single component is bigger than home affairs, police, defence combined
— Finance minister Enoch Godongwana
As part of moves to curb spending, the National Treasury is already talking tough on state-owned companies, ruling out bailouts for those that cannot manage their cost structure in the hope that government will rescue them.
In a review of the budget, the Treasury indicated that arms maker Denel would receive a R2.9bn allocation to prevent it from defaulting on its debt obligations. The minister also approved a special dispensation for Eskom to access an additional guaranteed debt of R42bn in 2021/2022 and R25bn in 2022/2023, which is part of its R350bn government guarantee.
The finance minister said the money that has already been spent on Eskom and other ailing SOEs had to be reprioritised from departments that deliver basic services, which is reflected in poor service delivery.
“Over the years, in funding Eskom and other SOEs, we’ve spent more than R290bn and have eroded the baseline of government by R214bn. You’ve reached a stage where you are actually impacting on service delivery. If [you] read the outcome of these elections, they are a reflection of those cuts on service delivery.”
