South Africa’s presidency is proposing spending as much as 88.5 billion rand ($4.6 billion) a year to tackle poverty at a time when the National Treasury is cautioning that the country has run out of money.
(Bloomberg) — South Africa’s presidency is proposing spending as much as 88.5 billion rand ($4.6 billion) a year to tackle poverty at a time when the National Treasury is cautioning that the country has run out of money.
In a presentation to business and labor leaders last week Olive Shisana, President Cyril Ramaphosa’s special adviser on social policy suggested a range of measures including an unemployment grant, food support and job creation initiatives, according to a copy of the document seen and confirmed by Bloomberg.
Shisana’s proposals highlight the difficulties Treasury faces in getting buy in for spending cuts, days after Finance Minister Enoch Godongwana said in a presentation to his political colleagues that they would be needed if the government wants to extend an existing grant to the unemployed, introduced as a temporary measure during the Covid-19 pandemic.
A falling tax take as almost daily power cuts curb economic activity and a dysfunctional rail network are curbing exports has limited Treasury’s options.
The demands on public finances also underpin the quandary the ruling African National Congress faces months ahead of an election in which it’s expected to face its sternest test yet. It can either rein in social spending and invest in growing a stagnant economy or improve benefits for potential voters. It can’t do both.
Shisana in the ‘Acceleration Plan’ presented to the National Economic Development and Labour Council on behalf of the Interdepartmental National Working Group on Poverty Alleviation also suggested “game-changer’ initiatives, such as:
- A permanent basic income support grant at a cost of 36 billion rand to 50 billion rand a year
- Subsidizing food necessary for child nutrition at a cost of 2 billion rand as well as seeking private sector contributions to this program
- 1.76 billion rand to support informal businesses
- 18 billion rand to pay for presidential employment stimulus programs and an expanded public works program
- 15.2 billion rand to boost small businesses and train women and youth
- About 1.55 billion rand in administration costs
Shisana, when called by Bloomberg, confirmed the presentation but declined to discuss the numbers. She said they will change constantly and that she is working on a proposal that can be included in the annual budget in February.
Godongwana, in his own presentation, warned that to maintain the current unemployment grant of 350 rand a month would cost 40.5 billion rand in the next fiscal year. That, he said, could require boosting the rate of value added tax or the closure of some government programs.
Those closures, he said, would result in job losses and a freeze on government funded infrastructure projects. His presentation lays out targeted cuts of 34.9 billion rand but suggests achievable reductions of 16.2 billion rand.
The Treasury didn’t immediately respond to queries about Shisana’s proposals and its own presentation.
Shisana, in her presentation, suggests that if the measures suggested are implemented expenditure on the basic income grant will fall as more jobs are created. The presidency should adopt a guarantee that no one will live below the poverty line by 2030, she says and the plan should be evaluated every year.
Godongwana’s frankness about the state of national finances, reported by a number of publications, has caused tension within government.
On Thursday the Cabinet said in a statement that the “budget shortfall must not impact negatively on service delivery” and Godongwana will clarify misunderstandings.
This dissonance between different arms of government is not unprecedented under Ramaphosa’s administration. While Ramaphosa has actively pushed for a green energy transition his energy minister has openly criticized measures to move away from coal. An electricity minister was appointed this year with responsibilities overlapping those of the energy and public enterprises departments.
–With assistance from Loni Prinsloo and S’thembile Cele.
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