South Africa’s finance minister said the government will resist pressure to implement politically popular but unaffordable policies, including the introduction of a basic income grant, before next year’s elections.
(Bloomberg) — South Africa’s finance minister said the government will resist pressure to implement politically popular but unaffordable policies, including the introduction of a basic income grant, before next year’s elections.
While the governing African National Congress has mostly avoided pre-vote spending sprees, it’s facing its toughest election battle since taking power in the country’s first multiracial election in 1994. Opinion polls show the party risks losing its national majority, and investors and analysts have raised concern that it may seek to boost state expenditure to shore up its support.
“I don’t want to be part of a government that collapses because of fiscal populism,” Enoch Godongwana, who is also a senior ANC leader, said in an interview Wednesday. He reaffirmed the National Treasury’s commitment to reducing budget deficits and reining in debt.
An unemployment crisis and deepening poverty in one of the world’s most unequal nations have fueled calls for an income grant, which would be the biggest of its kind globally. Last month, the ANC resolved that the government should continue welfare payments first introduced in 2020 to cushion the poor against the fallout from the coronavirus pandemic, while “investigating modalities and affordability of the basic income grant”.
Social Wage
Almost half of South Africa’s population receives some form of aid and the so-called social wage, which includes spending on social protection, health and education, is set to account for 60.2% of non-interest spending on average over the next three years. Expanding the welfare net will require trade-offs, the minister said.
“All other grants must die for the basic income grant to survive,” Godongwana said. Alternatively, government spending must be reprioritized and taxes increased to fund a more comprehensive social security system, he said.
The Treasury, which has sought to stabilize public finances by reallocating funds rather than by increasing spending, found that recent tax increases generated less revenue than expected and warned they can negatively affect economic growth.
Its ability to earmark more money for welfare payments has been constrained because it has had to bail out several indebted state companies, including power utility Eskom Holdings SOC Ltd., which has been subjecting the nation to rolling blackouts since 2008.
Eskom Bailout
In his budget speech on Wednesday, Godongwana announced a 254 billion-rand ($13.9 billion) debt-relief plan for Eskom to help it improve electricity supply and steady its finances. A turnaround will hinge on the implementation of politically unpopular electricity-tariff hikes approved by the nation’s energy regulator last month.
President Cyril Ramaphosa, who is expected to lead the ANC in next year’s election, has appealed to the power utility to suspend the price increases of as much as 18.7%. Godongwana said he explained to the president and his cabinet that delaying the tariff increases will deprive Eskom of as much as 7 billion rand in revenue and have “serious consequences” for public finances.
Eskom has survived on government bailouts since 2008. The latest plan will see the Treasury enforce strict conditions on the company and its executives to cut its reliance on the state after the three-year debt-relief period, according to the minister.
Eskom announced late Wednesday that Andre de Ruyter, its chief executive officer, will leave the company with immediate effect, more than a month earlier than he’d planned after resigning in December. A new head is likely to be appointed at the end of April, meaning Eskom’s board will oversee the start of the debt-relief program, Godongwana said before the announcement.
The government is also considering writing off debt of 56.3 billion rand owed to Eskom by municipalities, provided they agree to meet all future payments as it seeks to tackle a culture of non-payment — a consideration that’s practical rather than populist, he said.
“If I don’t sort out this debt problem and it continues to accumulate, Eskom is going to come back” to the fiscus for support, Godongwana said.
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